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Is a long-term auto loan a good idea? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by offering interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free to help you make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site are from companies who pay us. This compensation can affect the way and where products appear on this website, for example for instance, the order in which they may appear within the listing categories in the event that they are not permitted by law for our mortgage, home equity, and other products for home loans. However, this compensation will not influence the content we publish or the reviews that appear on this website. We do not cover the entire universe of businesses or financial deals that may be available to you.


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4 min read Read Published on January 30, 2023.

Writen by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the details of taking out loans to buy an automobile.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to control their finances by providing precise, well-studied information that breaks down complicated subjects into digestible pieces.

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Purchasing a vehicle takes far more than deciding to purchase an SUV or a sedan in black or red. If you’re buying the car using the help of a loan and you’ll need determine which repayment terms will make the most suitable for your budget and financial goals. The cost of cars is still high when compared to prior to that COVID-19 epidemic. The median cost of a brand new car during December 2022 was greater than $49,500 — 5 percent more expensive than the previous month one year earlier , and more than 20 percent higher than December 2020 . The longer your loan period — generally between 24 and , or between two and seven years — the lower your monthly payments will be. But be aware that a lower monthly payment has drawbacks, including potentially costing you more over the long term. For the majority of drivers that are in the long run, a long-term auto loan is not a wise idea. There are many reasons not to take out a long-term car loan The longer-term loans are attractive due to the fact that the monthly payments will be lower than those of the shorter-term loan. Although they permit you to purchase a higher-priced vehicle, they also make payments that are affordable, car loans can put you in a more difficult spot financially if you’re not careful. It is more likely that you will end up upside down on a loan A longer loan period means that you’re more likely to become upside down at some point in the future. Being upside down on an auto loan means you owe more than the car is worth. This is due to a greater portion of the monthly payment beginning in the loan will be spent on interest instead of the principal due. In the event of an upside-down loan, it can cause danger for many reasons. If you were to have an accident that caused the car is deemed to be as a total loss, then you could be left paying off the loan for a car you can no longer drive if insurance doesn’t cover it. Furthermore that the longer you’re upside-down on the car loan as well, the more time you have negative equity. Trading in a car with negative equity means you likely will not have enough cash to pay back the loan and you may even need to take out. Vehicle depreciation Depreciation isn’t a major issue for used vehicles during the initial few years. But, long-term loans on cars that are used aren’t a good idea. A car that is used likely has a significant number of miles on it and a longer-term car loan allows the miles to accumulate even more. Consider, for instance, that you purchase a vehicle that’s three years old that has 36,000 miles that’s what the typical American would drive in the same amount of time. If you get a six-year loan and travel 12,000 miles a year, which is the norm in America will be 72,000 miles. This means that your vehicle has 108,000 miles and could be close to 10 years old by the time it’s paid off. If you opt to sell it sooner, you may find it’s not worth the money or, worse, you don’t have any equity whatsoever. Higher interest Longer-term lengths typically have a higher rate of interest . This is generally because longer loans are more risky for lenders. With a protracted loan period you are more at risk of something might impact your financial situation before the loan is fully repaid. Even in cases where the interest rate on an extended loan is similar to a shorter term, you will still be paying more interest over the duration of the loan due to making payments on interest for a far longer period. Although your pocket may be relieved by the lower cost, the price may not be worth it. This is a particularly important consideration as the Federal Reserve continues to to address pandemic-related inflation. When the Fed raises benchmark rates, it increases the interest rates that private lenders provide for personal loans as well as auto loans. The new average loan rate for 2022 was 5.16 percent . However, rates ranged from 3.84 percent to those having the highest credit scores to 12.93 percent for those with the lowest or most subprime scores. Stuck with the same vehicle Prior to signing a car loan that’s up to 84 months, ensure you’ve and consider whether you will want to drive the same vehicle throughout the entire term. Seven years is an extremely long time. Your circumstances and requirements could shift. However, with a longer-term loan, you will remain with the same car. In most cases you will have to pay the loan is costly. Alternatives to a long-term auto loan There are many other ways to purchase a car without taking on the risks that come with a lengthy car loan. You can lease a car if you are struggling to get accepted for an acceptable loan, you may . Leasing can provide more affordable monthly payments. Even drivers with fair credit are more likely to receive approval for a lease however, you are able to get behind the wheel of an extremely new car. The downsides of leasing are something you should remember. There are limitations on how far you’re able to drive during the lease term and charges in excess wear and tear. Perhaps most important of all, you’ll need to either return or replace the vehicle at lease’s end. Get a co-signer A with excellent credit rating provides prospective lenders with additional confidence that you’ll pay back your loan. This makes you more likely to be approved even if your credit score is not perfect. Set up a high-down payment If you want to lower your monthly costs, making a high amount down payment is a good alternative. The more you deposit initially and the more affordable the monthly cost will be. Additionally, you will receive more favorable interest rates with your lender. Do you think a long-term auto loan worthy of the risks? A long-term car loan is not usually an ideal option due to the risk of financial loss. While the lower monthly payments on a longer-term car loan might seem appealing at first, it is more beneficial to save extra cash to make the down payment or opt for a cheaper car, so the monthly payment is more affordable with a shorter loan. The bottom line Before signing on to a long-term car loan take into consideration the disadvantages. Apart from costing you more over the duration of the loan it could also mean that you end being upside down with the loan . Additionally, your vehicle needs may be different within 5 to 7 years, when you’re still paying off the loan. Take a look at alternative to the long-term loans, such as making a bigger down payment and leasing a car or obtaining a co-signer with a credit score can help you achieve better loan terms.


Authored by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ways and pitfalls of borrowing money to purchase the car they want.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing concise, well-studied information that breaks down complex subjects into digestible pieces.

Auto loans editor

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