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Should You Get A 72-Month Auto Loan?

3-Minute Read

If you need to buy a new car but don’t have the money to pay cash, taking out a car loan can act as a lifesaver. And as vehicle prices continue to go up, extending the length of your auto loan is an easy way to achieve a lower monthly payment.

According to data from Edmunds, the average loan term for a new car is 70.6 months. Choosing a 72-month or 84-month loan may sound appealing, but is it the best choice financially?

The answer to that question depends on your credit history as well as your own financial goals. For borrowers with bad credit, taking out a long-term loan may be worth it, but there are a few things you should consider first.

An Overview Of Longer-Term Auto Loans

An auto loan is a type of installment loan, which means you make monthly payments over a fixed period of time. Most auto loans come with repayment terms that are anywhere from as little as 24 months to as long as 96 months.

The standard auto loan is 60 months, which is 5 years. If you choose financing that’s longer than that, it follows that you’ll have a long-term auto loan.

The benefit of taking out a 72-month loan is that it allows you to buy a nicer car while lowering your monthly payments. Auto dealers offer these long-term loans to reduce the monthly payments without lowering the sale price of the car. 

But many consumers don’t realize that extending the monthly payments could also bump up the amount of interest you end up paying. 

The Drawbacks Of A 72-Month Auto Loan

In some situations, taking out a 72-month auto loan may make sense. But in general, most financial experts agree that it isn’t a good idea. Here are the three biggest drawbacks of a 72-month loan:

1. You’ll End Up Paying More Than The Car Is Worth

When you take out a long-term auto loan, you’ll end up paying more money for the vehicle than it’s worth. This is what’s known as being “underwater” or “upside down” on the loan.

New cars depreciate very quickly and lose a lot of their value within the first couple of years. Many experts say a car loses 10% of its value the moment you drive it off the lot! Different cars depreciate at different rates, so yours could lose its value even faster. 

If you unexpectedly get into an accident or if your car is stolen, you may owe more money on the car than it’s worth. Or, if you decide you want to sell the car, this will lower the resale value. 

If you do decide to take out a 72-month loan, it’s a good idea to purchase gap insurance. This insurance will cover the difference between what the car is worth and what you still owe on it.

2. You’ll Pay More Money In Interest

Lenders know that borrowers who take out a longer loan are more likely to default on the loan. To compensate for the added risk, they often charge higher APR or interest rates. There’s no benefit to paying more money in interest – it’s wasted money.

If you’re considering taking out a 72-month loan, make sure you compare your financing options. Check with different banks and online lenders so you know you’re getting the best interest rate possible.

3. You Could End Up Paying A Lot Of Money In Auto Repairs

If you choose to take out a long-term auto loan, your payments will most likely end up exceeding the car’s warranty. This could cause financial problems down the road.

For instance, let’s say the warranty lasts 5 years, but you owe payments on the car for 6 years. Can you afford to make a major car repair and continue to make the monthly car payments after the warranty is up? 

Alternatives To 72-Month Loans

If you’re considering buying a car but the monthly payments are too high for 60-month loans, going up to a 72-month loan can be tempting. However, this is likely a sign you’re over-extending yourself. 

Here are a few alternatives to taking out a 72-month loan:

Use A Personal Loan

An auto personal loan can be used to purchase a new vehicle and pay for any damages or needed parts.

Buy A Used Car

Instead of buying a new vehicle, it may be a better option to buy a used car at a lower price point. That way you’ll end up paying less for the car, securing a shorter loan term and paying less in interest.

Consider Leasing

If you have your heart set on a certain vehicle, you might consider leasing instead of buying. You can usually lease a car for less money upfront, and the monthly payments will be lower. Plus, you’ll have the option to buy the car once your lease is up.

Pay A Large Down Payment

If you want to take out a long-term loan, consider putting down a large down payment as well. This will help you avoid being underwater on the loan.

Refinance At A Lower APR

And finally, if you already have a 72-month loan and are paying more than you’d like, refinancing is usually an option. Borrowers with a good credit score will qualify for the best terms and rates. 

Final Thoughts On Auto Financing

Taking out an auto loan can make buying a car easier and more affordable. But if a 60-month loan is going to be too hard on your monthly budget, then taking out a 72-month loan is always an option.

Just make sure you go into the lending process informed. Shop around at different dealerships and compare your options between different lenders. And make sure you know what the total sales price is instead of only focusing on the monthly payments. For more information, be sure to check out our Learning Center.

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