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Think twice about getting a long-term car loan

Lower monthly payments 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 six to seven 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 reaching $576 in late 2020 — and loan terms reaching nearly 70 months — it’s important to understand how a long-term car loan can have a long-term affect 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. For an average new car, that means you’ll have an interest rate of 4.31% on a loan of $35,000. Here’s how it breaks down:

Loan termTotal interestTotal cost
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

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.

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 six or seven 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 six or seven 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 four 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 lenders, usually banks and credit unions, that offer loan 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

A low monthly payment may be the best option to keep your car loan affordable. In that case, there are a few tactics to make the most of a long loan 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 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:

  • 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.
  • 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

To see a wide range of loan terms, select your credit score and state.

Name Product Filter Values Minimum credit score APR Loan term Requirements
PenFed Auto Loans
Varies
Starting at 1.04%
Up to 10 years
Active membership with PenFed
Low APR car loans from a well-known credit union.
Carvana
No minimum credit score
3.9% to 27.9%
Varies
18+ years old, annual income of $4,000+, no active bankruptcies
Get pre-qualified for used car financing and receive competitive, personalized rates.
car.Loan.com Car Loans
300
Varies by network lender
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
CarsDirect auto loans
No minimum credit score
Varies by network lender
Varies by network lender
Must provide proof of income, proof of residence, and proof of insurance.
Save time and effort with this lending service specializing in beginner-friendly or subprime car loan.
Auto Credit Express Car Loans
300
Varies
Varies
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
Get connected with an auto lender near you, even if you have bad credit.
Monevo Auto Loans
500
3.99% to 35.99%
3 months to 12 years
Credit score of 500+, legal US resident and ages 18+.
Quickly compare multiple online lenders with competitive rates depending on your credit.
LendingTree
Good to excellent credit
Starting at 3.09%
Varies by lender
18+ years old, good to excellent credit, US citizen
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
myAutoloan.com Car Loans
550
1.79% to 27%
550+ credit score, no open bankruptcies, $24,000+ annual income, US citizen or permanent resident, 18+ years old
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
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Compare up to 4 providers

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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