To show you what that might look like IRL, we’ll compare loan interest rates on a fictional set of wheels. Not only are 72-month auto loan rates higher, but you pay more interest than you would if you borrowed the same amount of money with a shorter-term loan. This may not seem like a big difference until you start calculating the amount you’ll pay in interest over 12 more months. The average interest rate for a 72-month new car loan is about 5.4% and 9.2% for a used car loan. The longer the loan term is, the higher lenders will hike their annual percentage and interest rates, especially when loan repayment terms push past 60 months. Rolling over your outstanding loan balance to a new car loan isn’t recommended because you’ll start with negative equity on the car before you ever take the wheel. Negative equity will complicate everything if you decide to sell or trade in your car for a new one. But a 72-month loan makes it easier to end up owing more than your car is worth – and you’d find yourself with negative equity in your car. As you pay the loan, you get closer to owning the vehicle outright. You build equity each time you make a payment, and your car loan balance gets smaller than the car’s value. Getting a long-term loan for an older car increases the chances that you’ll be underwater until your loan is paid off. The longer you hang on to your car, the more the car depreciates, and you could end up with a loan balance that’s bigger than the car’s value. New vehicles depreciate quickly in their first year (read: lose value), and that slide in value continues year after year. You are underwater or upside-down when you owe more on your car loan than the car is worth. Here are some more reasons why a 72-month car loan can be a bad idea: Going underwater or upside-down But if you’re stuck with a long-term loan, it can be harder to buy a new car. Buy a different car: Starting a family, moving or starting a new job may require a different car.Work toward other financial goals: The money you’re spending on car loan payments for 6 years can’t be used to save for a home or pay down other (maybe higher-interest) debt.If you do hop on the 72-month loan trend, you should know it could make it harder to: Remember the pencil-thin, dramatic eyebrows from the 90s? Some of us didn’t fare as well as Gwen Stefani or Rihanna. īut not all trends are meant to be followed. At the start of 2022, 73% of new car buyers got loans over 5 years. Long-term loans are on the rise just look at the stats. But there are downsides to long-term loans. It might be okay to finance a car for 72 months (or may be your only option) if you have a tight budget, bad credit or don’t qualify for a better loan term. Why take out a loan that’s 72 months or more? Well, the longer your loan repayment period is, the lower your monthly auto payments are. As car prices continue to drive up, 72-month loans are becoming popular. The standard car loan term is around 60 months. Car loan repayment periods range from 24 to 84 months (or 2 years). When you finance a car, you take out an installment loan and make fixed payments that include principal and interest over a predetermined repayment period. We’ll explain why a 72-month car loan can be a bad idea and offer some alternatives. Agreeing to a 72-month car loan can help make your monthly payments more affordable, but is it wise to get a 72-month car loan? □ The catch is getting a loan that fits comfortably into your monthly budget. Fast forward to today, and getting a loan to buy a car is pretty much expected. Believe it or not, there was a time when most car buyers bought their cars with cash.
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