As car prices increase, longer terms, such as 72-month car loans (six years) are becoming more popular. Auto loans with a 6-year term have lower monthly payments, but this also means you have to pay more interest over the life of the loan. In some cases, it can also trap borrowers in a cycle of negative equity. The good news? It is sometimes possible to get shorter-term loans, and if you currently have a 72-month auto loan, you can always consider refinancing.
You walk into a dealership to find your dream car, but there’s no way you can afford the monthly payments. The dealer says this won’t be a problem if you extend your loan term. Rather than the usual 60-month term, the dealer suggests a 72-month car loan.
A 72-month car loan gives the borrower six years to pay off the loan amount. While this extended length offers lower monthly payments, it comes with a price. Namely, high interest rates and an even higher total price. This article will discuss how a 72-month loan compares to other car loans and the pros and cons of loans with longer terms.
How long can a car loan be?
A car loan can have a wide range of different payment options in terms of length. Car loan terms typically go anywhere from 24 months to a whopping 84 months. Some lenders will even go as high as 144 months. 72 months is typically the longest term a used car can obtain and is more common among professional equipment.
How common are 72-month car loans?
Longer car loans are becoming more common with the growing cost of new and used cars. The average loan term for a new car is approximately 66 months, which is similar to used car buyers who opt for a 64-month term. However, while 72-month loan terms may be more popular, they’re still not a good investment.
How much is a typical car loan payment, anyway?
The cost of a monthly payment will differ depending on whether the car is new or used. The most recent statistics show that used cars result in an average car payment of $465 per month. A new car typically runs about $605.
How long is a 72-month car loan?
A 72-month car loan will take six years to pay off (12 months x 6 years = 72). However, that assumes you make timely payments and follow the initial payment schedule. In many cases, you can pay it off early with minimal prepayment penalties.
However, if you can afford higher monthly payments now, it’s probably best to choose a shorter term. Although longer-term auto loans are becoming the norm, there are some serious downsides worth considering.
What are the benefits and pitfalls of a 72-month loan?
Despite the allure of low monthly payments, it’s important to remember the drawbacks of long loans. Before entering into a longer car loan, consider these pros and cons.
Here is a list of the benefits and drawbacks to consider.
- Lower monthly payments. If you want low monthly payments but have your eye on a new car, you can get the car you want while maintaining your monthly budget. Even then, keep in mind all the extra interest you’ll pay throughout the loan’s duration.
- Higher interest rates. If a loan term stretches beyond 60 months, the interest rate jumps. Most long-term loans are going to be considered high risk, which means interest rates will be higher. This means you’ll spend more money on interest, which means high monthly payments.
- Stuck with negative equity. You don’t want to owe more on the car than it’s worth for too long (also known as being “underwater”). If you get in a car wreck and insurance kicks in, you will be left with no money for a down payment and no car. You can get some help from your insurance company if you have gap insurance, but this choice isn’t for everybody.
- Car repairs and breakdowns. A 72-month loan is a long time to pay off a vehicle, even a new car. All cars need repairs at some point, and this is money you’ll have to pay in addition to a high interest rate. Getting a used car with a 72-month payment plan is an even greater risk, as the car might die before you’re done paying it off.
What are my other auto loan options?
Long car loans aren’t for everybody, and you can often get better loan terms just by doing your homework. If you know what you’re looking for but not where to start, it might be best to compare lenders before reaching out to one.
Is a 72-month loan a good idea?
Vehicle prices are higher than what they used to be, especially new vehicle prices. If you can’t afford a car otherwise, 72-month financing may be your only option. It is risky, yes, but the truth is that loan lengths have been on a steady rise for years. Even though it is possible to get these terms, we suggest getting approved for a shorter loan.
What APR is too high for a car?
The average APR for a car loan depends on your credit score. Most car dealers may offer APRs close to the ones below for used cars, but newer cars will have even lower interest rates. Generally speaking, you should avoid paying an APR above 7%, but if you have poor credit you may not have many options. If you have to get a bad credit car loan, make sure you compare several lenders. You may be surprised by the rates and terms you can get.
Why do car dealers encourage people to take long-term car loans?
Unfortunately, this is a common feature of dealerships. Car dealers often just want you to buy a car, even if can’t really afford it.
Car dealers know that most people focus on the monthly payment when considering whether they can afford a loan — not the overall cost. So, they want you to feel comfortable with the monthly rate they’re offering, but this comes with consequences. If a dealer offers you a reasonable monthly payment for an expensive car, they’re likely assuming you’ll make a higher down payment or extend the loan term past 60 months.
Can dealers hide loans that offer lower interest rates from you?
Well, it depends what you mean by hide. Car dealerships are certainly not required to offer you the best rate or terms you can qualify for with other lenders. And they are very unlikely to recommend other lenders with lower interest rates. They may also add interest points and fees to the financing offer they are getting from their lending partners.
However, there’s nothing stopping you from shopping around for the best financing available. Get the best deal possible by comparing auto loan lender rates and terms before even approaching a dealership. Find out which lender offers the best rates and terms and then see what the dealership has to offer.
Can you negotiate a lower interest rate from a car dealer?
Yes, you definitely can (and should). Sadly, many people feel comfortable haggling over the price of a car but few consider negotiating the financing details.
Consider negotiating financing terms when the salesperson feels they already feel like they have the sale. A few minutes of negotiation can get you a lower rate or origination fees, which could save you hundreds, if not thousands, of dollars every year.
How can you reduce your monthly payments without a long loan?
Car payments are rough on the wallet, and that’s why longer loans are so popular. The problem, of course, is that most people want minimize their monthly payments. The good news is there are several ways to avoid the long length without a higher monthly bill.
- Spend more money on a down payment. A larger down payment will reduce the overall price and could prevent you from owing more on your car than it’s actually worth (negative equity).
- Find your own loan. Many dealers will try to insist on using dealership financing as a way to pad their wallets. Most of the time, shoppers will be able to reduce their bills just by doing their own legwork.
- Offer a trade-in. If you have a vehicle you no longer need, you can save a lot of money by putting the equity you built into toward a new car. However, before you agree to a trade-in, check whether you can get a better deal by selling the car yourself.
- Lease a car. If you prefer avoiding loans altogether, then leasing a car may be a great option for you. Rather than paying towards a loan balance, you can “rent” a vehicle and make smaller monthly payments.
- Refinance. If you know your monthly payment troubles are long-term, you may be better off refinancing your loan. This may help you avoid late fees and a drop in your credit score.
Does your car payment go down if you pay extra?
Most long-term car loans do not have a prepayment penalty. However, that doesn’t mean your car payments will decrease if you pay extra. In most cases, the only way to have that happen is if you refinance it or put more money down.
- Longer car loans offer lower monthly payments but higher interest rates.
- Most auto loans of this length will allow you to prepay if you want to, but won’t lower payments as a result.
- The longer your car’s loan length is, the higher the risk you will end up owing more on it than it’s worth.
- Your best option is to get a more affordable car or to increase your down payment on your car’s loan.
- If at all possible, find out what auto loan rates and terms you qualify for before you go shopping for a car.
View Article Sources
- Do I have to get my loan from the dealer? — Consumer Financial Protection Bureau
- Can I negotiate the interest rate on an auto loan with the dealer? — Consumer Financial Protection Bureau
- Take control of your auto loan — Consumer Financial Protection Bureau
- 144-Month Auto Loan: 3 Main Pros and Cons — SuperMoney
- How Much Car Loan Can You Afford — SuperMoney
- How to Get Approved for a Car Loan — SuperMoney
- How To Get The Best Deal on a Car Loan — SuperMoney
- Best Personal Loans to Buy a Car | March 2022 — SuperMoney
- Auto Loans: Reviews & Comparisons — SuperMoney