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Should I get a long-term car loan?
Those lower monthly payments might be tempting, but they'll cost you in the long run.
Taking 72 months or longer to pay back your car loan can seriously lower the monthly cost. But the drawbacks might outweigh the benefits. You could end up paying almost as much in interest as your car was originally worth. And there’s a higher risk of your loan becoming upside down.
Should I get a 72- or 84-month auto loan?
It depends on your financial situation. If you need a car now and can’t afford the monthly repayments that come with a shorter term, a long-term car loan might make sense.
But there’s a considerable trade off — a long term costs a whole lot more since there’s more time for interest to add up. Even if you get the same rates and fees as you would with a shorter term, it can cost you thousands of dollars more in the long run.
Term length affects how much you pay in interest
Here’s how your monthly payments and total loan cost would look for a $35,000 car loan at 12% APR based on four different repayment lengths:
| 24-month term | 48-month term | 72-month term | 84-month term | |
|---|---|---|---|---|
| Monthly payment | $1,684 | $922 | $684 | $618 |
| Total cost | $39,542 | $44,241 | $49,266 | $51,899 |
How can I benefit from a long term?
There are a few perks of taking out a car loan with a longer term, including:
- Lower monthly repayments. A long-term car loan spreads your repayments out over a longer period of time, making it more affordable from month to month.
- More cars to choose from in an emergency. Lower monthly repayments mean you can buy a car that might otherwise be out of your budget when you’re in a real pinch.
- Frees up money to pay off more costly debt. When you need a car but have higher-interest loans to take care of, a long term frees up cash so you can focus on paying off that debt before the interest starts to pile up.
What are the risks?
Consider these potential drawbacks before signing on to a 72-month term or longer:
- Higher total cost. A longer term means you’ll pay more in interest over the life of your loan.
- Risk of going upside down. Your loan is considered to be upside down if your balance is worth more than your car. The longer you have a car, the more its value decreases.
- More difficult to trade in later. Having an upside-down car loan means you’ll have to pay the dealership the difference between your loan balance and the value of your car when you want to trade it in.
- Higher rates. Often car loan providers and dealerships charge higher rates for longer terms. This could mean a longer term isn’t lowering your monthly cost as much as you think.
- Paying for repairs on top of the loan. An older car is going to need repairs, and warranties often expire before those long terms are up. You could be setting yourself up for some months where you have to cover repair costs on top of your car loan payment.
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4 ways to get the most out of a 72- or 84-month car loan
A long-term car loan usually isn’t ideal, but sometimes it’s the best option when you’re short on cash and need a car now. If that’s the case for you, consider taking some of the following steps to make sure you get the most out of it.
- Make a large down payment if possible. The larger your down payment, the lower your principal will be — meaning less interest.
- Prioritize quality. The fewer repairs your car needs, the less it’ll cost you — and it could minimize depreciation.
- Get gap insurance. Gap insurance offers protection for the difference between what you owe on the car and its cash value — in other words, it protects you from an upside-down car loan.
- Refinance when you can. Just because you have a long term now doesn’t mean you’re stuck with it until the end. Save on your 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? Consider one of these alternatives instead:
- 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.
- Get a less-expensive used car. Buying used might give you more bang for your buck since it likely costs less and won’t depreciate as dramatically over time.
- Save up. When time isn’t of the essence, it might make more sense to save up for a large down payment, which can make monthly repayments on a shorter term more affordable.
Bottom line
Getting a long-term car loan can help reduce your monthly repayments. But the risks often outweigh the benefits. You might want to opt for a shorter term if you can afford to pay a little more each month. You can read more about how auto financing works with our guide to car loans.
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