Tips for your new spring purchase

(NC) With warmer weather and summer road trips approaching, one popular item that people are upgrading is their vehicle. But before you sign on the dotted line, there are some things to consider.

Once you've done your research, crunched some numbers and have a make and model in mind, it's time to think about finances. When you walk into a dealer's showroom, the first question you'll likely be asked is about your monthly budget. But focusing on your regular payments can steer you to buy more car than you can afford, leading to a bumpy financial road ahead. A longer-term loan — one that's more than five years or 60 months long — offers an affordable entry into the market by keeping your payments relatively low. But you need to be aware of the disadvantages:

  1. You will pay more interest by the time you clear the debt, and your credit rating could be compromised. Long-term loans are especially costly if you have a poor credit score or no credit history, both of which may mean you'll pay higher interest rates.
  2. You may be tempted to buy a more expensive car for the same monthly cost, over a longer term.
  3. You will expose yourself to more financial risk. For instance, if you lose your job or have an accident in which the car is a write-off before the loan is paid, you'll owe more than your car is worth.
  4. If you want to trade in your car after four or five years, you may still have another three or four years of payments owing.

“After the trade-in — and if your lender agrees — you can add what's left of that debt into a new loan for another car,” explains Lucie Tedesco, commissioner of the Financial Consumer Agency of Canada. “That means a bigger debt, possibly at a higher interest rate, which can put you on a dangerous debt treadmill.”

Check out the FCAC's budget calculator to help plan your next car purchase online at

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