Monthly Car Payment vs. Total Cost
Not all borrowers have the same needs.
Financial institutions are already aware of this fact, but even so, it is essential for these organizations to take care when choosing borrowers. This blog has recently discussed the increasingly popular trend of longer car loans, but that might not be the best option for all consumers.
When banks have comprehensive loan management software, it can help them find the best options available for different borrowers.
Ronald Montoya, consumer-advice editor for Edmunds.com, explained to the Chicago Tribune that many shoppers—those in younger generations especially—will only think about the monthly payments and not the total cost.
According to Jeff Bartlett, deputy auto editor at Consumer Reports, lengthier car loans might not be the best option for younger customers. Recent college graduates, or the Millennial generation in general, are more likely to be going through major life changes. Switching jobs, purchasing a home for the first time or even starting a family can cause individuals to consider trading in or trying to sell before a loan is finished.
Bartlett agreed with Montoya, in that it is important to do all of the math before making a commitment. It is important for customers to understand what they would owe in monthly payments, as well as overall cost.
“You have to understand what the full commitment is,” Bartlett told the news source. “There’s a big difference between wanting to spend only $400 per month and wanting to pay $20,000 total.”
Banks need to also keep these factors in mind when determining who is a creditworthy borrower. By taking all aspects of an individual’s credit history into account, along with using thorough credit application software, financial institutions can choose qualified borrowers.