Car insurances are tough. One mistake can destroy your financial stability and earn you high interest rates in the future. Therefore, it is important that you understand every aspect of the insurance process and make a wise decision.
When it comes to analyzing the many aspects of a car insurance, the term of the insurance takes a back seat. If you are in the insurance market and confused about choosing the perfect car insurance program, do not make the mistake of ignoring the term of the insurance.
What are the different car insurance terms offered by lenders?
Two years ago, the recommended term by lenders was 5 years or 60 months. However, times have changed. Today, you can easily get a insurance for 8 years or 96 months. Also, there have been cases where you can continue to make car insurance payments for 9 years or 108 months.
Is a longer tenure of a car insurance a boon for car buyers with bad credit?
If you are a bad credit car buyer, you will get higher interest rates than a good credit car buyer. Lenders understand that higher interest rates will make monthly payments difficult for you. Therefore, they provide longer insurance terms to make the monthly payments bearable. Does that mean a longer insurance term is a blessing? It’s time to understand the financial impact of this.
If you have a bad credit history, lenders will provide you with high interest rates. Also, higher interest rates over a long period of time mean more interest.
If you take out a short-term car insurance, you will be in an inverted position for the first two years. But, if you choose a longer insurance period, you will owe more than the value of the car for several years. This is because you will be making lower payments each month.
If you are in an upside down position, your car has no equity. It is difficult to sell such a car and buy a new one. Also, it is difficult to replace a car with another.
High maintenance cost
If you choose to, you will have a hard time selling the car. And if you keep using the car for several years, you will have to take care of increased maintenance costs such as higher repair cost and higher fuel expenses.
When is a longer car insurance term recommended for car buyers with bad credit?
It makes financial sense in the following situations:
1. If you have received very low interest rates on the insurance
2. If you can choose a large down payment and reduce the chances of an inverted position
3. If you use your car for a very long time
There is nothing wrong with choosing a longer car insurance term. But it is important to check your situation before making a decision. Remember to look before you jump.