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Think twice about getting a long-term car loan

Lower monthly payments a long-term car loan might be tempting, but they'll cost you in the long run.

Long-term car loans promise low monthly payments. But there are plenty of downsides to borrowing for 72 to 84 months — or 6 to 7 years. Not only will you pay more in interest, you may also pay more in repair costs and may lose money on your next loan.

With average monthly payments in Canada ranging from $300 to $600, it’s important to understand how a long-term car loan can have a long-term effect on your budget for years to come.

5 reasons to avoid long-term car loans

While a 72-month or 84-month car loan can be convenient to lower your monthly payment, it typically isn’t the most financially sound choice. You’ll pay more in interest over the life of your loan — and you may actually receive a higher interest rate than you would on a shorter term.

1. You’ll pay more interest

Long-term car loans are expensive. Despite the low monthly payment, you’ll end up paying much more overall. Let’s take the example of an average new car with an interest rate of 4.31% on a loan of $35,000. Here’s how it breaks down.

Loan termTotal interest chargedTotal cost you pay
24 months$1,592.95$36,592.95
36 months$2,374.23$37,374.23
48 months$3,166.31$38,166.31
60 months$3,969.17$38,969.17
72 months$4,782.80$39,782.80
84 months$5,607.17$40,607.17

Looking at this example, you would save $3,232.94 by opting for a 3 year car loan term rather than a 7 year term.

While you may be able to find a special deal if you have excellent credit, long-term auto loans tend to have higher interest rates. You can calculate your monthly payment and total interest to see how much more a long-term loan will cost you using our car loan monthly payment calculator below.

Car loan monthly payment calculator

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2. It’s easier to go upside down on your loan

“Upside down,” “underwater” and “negative equity” all mean the same thing: You owe more on your car than it’s worth. This is a high risk, low reward scenario. Even if you keep your car the full 6 or 7 years of your loan term, its value will have significantly depreciated.

When you go to sell your car or trade it in at the dealership, you may not recoup your losses. And if you choose to sell before your loan term is finished, it will cost you more — wrapping your previous loan into a new car loan will lead to high debt.

3. Your finances might change

Low monthly payments seem like a good future bet. But realistically, higher monthly payments and a shorter loan term save you money. Instead of paying an extra $4,000 in interest for a longer loan term, you could put that money into savings.

In the worst case scenario, having a fully paid off car will be more beneficial than a lower monthly payment.

4. Newer cars lose value faster

Depreciation takes its toll on new and used cars. You’ll lose money as a car ages and its value decreases. On top of this, your warranty will expire a year or two before you finish making payments. This puts you on the hook for expensive repairs which could sink you further into the red.

If you’re thinking of getting a long-term car loan on a new car or late model year used car to reduce payments, keep this in mind. The money you lose to depreciation can quickly put you upside down on your loan.

5. Older cars have less resale value

In addition to depreciation, older cars have less resale value. Even if your car was originally worth $35,000, it won’t be by the end of 6 or 7 years. You could potentially make up some of what you paid in interest, but you’d stand a better chance of breaking even with a shorter loan term.

So what’s an ideal loan term?

The ideal loan term depends on your financial situation — but try to choose a loan with the highest monthly payment your budget can afford. A shorter loan term of 4 years or less means you won’t pay as much in interest. So while your monthly payments will be higher, you’ll save money in the long run.

Do lenders offer 10-year loan terms?

There are some lenders who offer personal loans secured by the vehicle with terms up to 120 months — 10 years. While this will result in a low monthly payment, rates aren’t competitive. In addition, a vehicle won’t retain its value over a decade. You may end up owing more on your loan than the car is worth, making a 10-year auto loan a poor investment.

How to make the most out of a long-term car loan

If a low monthly payment is the best option to keep your car loan affordable, there are a few tactics you can use to make the most of that longer term.

  • Invest in a quality vehicle. The fewer repairs your car needs, the less it’ll cost you — and it could minimize depreciation.
  • Make a large down payment. The larger your down payment, the lower your principal will be and the less you’ll pay in interest.
  • Work on other debts. If you have high-interest debts, opting for a low monthly payment so you can prioritize these can help your finances.
  • Refinance when you can. You can save on your car loan by refinancing once you have the monthly cash flow to afford a shorter term.

Alternatives to long-term car loans

Not sure you want to take on a longer term, but still need an affordable car? Consider one of these alternatives instead:

  • Choose a less expensive car. You could lower your monthly payments with a less expensive car without borrowing for over 72 months.
  • Opt for a lease. Leasing a car comes with the benefit of lower monthly repayments without the high interest rates and risk of going upside down. See our guide for leasing vs buying a car here.
  • Shop used cars. Buying used might give you more bang for your buck since it likely costs less and won’t depreciate as dramatically over time.

Compare car loan options

Name Product Loan Amount Interest Rate Loan Term Min. Credit Score Requirements Table description
CarsFast Car Loans
$500 - $75,000
4.90% - 29.90%
12 - 96 months
300
Min. income of $2,000 /month, 3+ months employed
Get a new or used vehicle delivered to your door.
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs.
Loans Canada Car Loans
$500 - $35,000
0% - 29.99%
3 - 96 months
300
Min. income of $1,800 /month, 3+ months employed
Compare rates from multiple lenders.
Complete a single application to get quotes from different lenders. Bad credit, CERB and EI borrowers considered.
AutoLoanProviders
$7,500 - $85,000
3.99% - 29.99%
12 - 96 months
300
Min. income of $1,800 /month, 1+ months employed
Available in Ontario only.
Apply online and get your new vehicle delivered to your door anywhere in Ontario free of charge. All credit scores considered.
Coast Capital Car Loan
$10,000 - No Max.
Varies
18 - 84 months
650
Able to service debt payment of $300/month
Competitive rates and flexible terms.
Finance new and used vehicles from one of Canada's largest credit unions. No credit union membership required. Available across Canada except SK, QC, NT, NU, YT.
Splash Auto Finance
$10,000 - $50,000
9.90% - 29.90%
24 - 84 months
300
Min. income of $2,200 /month, 3+ months employed
Apply with any credit score.
Get financing for a new or used car. Auto loans for borrowers with fair credit, bad credit, no credit or bankruptcy.
goPeer Car Loan
$1,000 - $25,000
8.00% - 31.00%
36 - 60 months
600
Min. income of $40,000 /year
P2P platform with competitive rates.
Canada's first regulated consumer peer-to-peer lending platform that connects creditworthy Canadians looking for a loan with Canadians looking to invest.
Carloans411 Car Loans
$500 - $50,000
1.90% - 19.99%
Up to 72 months
300
Min. income of $1,600 /month, 3+ months employed
High application approval rate.
Get connected with suitable lenders to finance your next car, van or truck. Check eligibility for this loan through LoanConnect.
Canada Auto Finance
$500 - $45,000
4.90% - 29.95%
3 - 96 months
300
Min. income of $1,500 /month, 3+ months employed
Get financing from partnered local lenders.
Financing for a new or used car is available for borrowers with bad credit, no credit, CERB, EI or bankruptcy.
LoanConnect Car Loans
$500 - $50,000
9.90% - 46.96%
3 - 120 months
550
No min. income requirement
Pre-approval in as little as 60 seconds.
Get access to 25+ lenders through this brokerage. Get your funds in as little as 24 hours.
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Bottom line

Getting a long-term car loan can help reduce your monthly payments. But the risks often outweigh the benefits. You should opt for a shorter term if you can afford to pay a little more each month and compare car loans to get the best interest rates.

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