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72-Month Auto Loans in Canada: All Your Questions Answered

Posted by on Jun 28, 2024 - Archived under Uncategorized

When shopping for a new car, Canadians often encounter various financing options. One popular choice is the 72-month auto loan. But what exactly does this mean, and is it a good idea for you?

 

In this article, we will break down everything you need to know about 72-month auto loans in a simple and easy-to-understand manner.

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What is a 72-Month Auto Loan?

A 72-month auto loan is a type of financing option where you agree to pay off your car over six years. This means you have 72 months to make payments on your car loan.

 

Many Canadian dealerships offer these loans because they make monthly payments more affordable by spreading the cost over a longer period.

 

Benefits of a 72-Month Auto Loan

Lower Monthly Payments: One of the main advantages of a 72-month auto loan is lower monthly payments. Since the loan term is extended over six years, the amount you pay each month is smaller compared to shorter-term loans. This can make it easier to fit into your monthly budget.

 

Affordability: Lower monthly payments mean you might be able to afford a more expensive car than you initially thought. This is particularly appealing if you have your heart set on a specific model with all the features you want.

 

Flexibility: With lower payments, you have more flexibility in your budget to manage other expenses. This can be especially helpful if you have other financial commitments like a mortgage or student loans.

 

Drawbacks of a 72-Month Auto Loan

Higher Interest Costs: Although your monthly payments are lower, you will end up paying more in interest over the life of a 72-month auto loan. The longer the loan term, the more interest accumulates, which means you could pay thousands of dollars more in the long run.

 

Depreciation: Cars lose value over time, and with a 72-month auto loan, you risk owing more on your loan than your car is worth. This situation, known as being “upside down” or “underwater” on your loan, can be problematic if you need to sell or trade in your car before the loan is paid off.

 

Long-Term Commitment: A six-year loan is a long-term commitment. Life circumstances can change, and what seems manageable now might become a burden in the future. You need to be sure you can sustain the payments for the entire loan term.

 

Is a 72-Month Auto Loan Right for You?

Deciding whether a 72-month auto loan is the right choice depends on your personal financial situation. Here are a few tips to help you decide:

 

Evaluate Your Budget: Take a close look at your monthly income and expenses. Ensure that you can comfortably afford the monthly payments not just now, but for the next six years.

 

Consider Your Long-Term Plans: Think about how long you plan to keep the car. If you usually trade in your car every few years, a shorter loan term might be better to avoid being underwater on your loan.

 

Check the Interest Rates: Compare interest rates for different loan terms. Sometimes, shorter loans have lower interest rates, which can save you money overall, even if the monthly payments are higher.

 

Look at Your Credit Score: Your credit score will affect the interest rate you qualify for. A higher credit score can get you a better rate, making a longer loan term more affordable.

 

Tips for Managing a 72-Month Auto Loan

If you decide that a 72-month auto loan is the best option for you, here are some tips to manage it effectively:

 

Make Extra Payments: If possible, try to make extra payments towards the principal balance. This can reduce the amount of interest you pay over the life of the loan and help you pay it off sooner.

 

Avoid Late Payments: Late payments can hurt your credit score and result in additional fees. Set up automatic payments or reminders to ensure you never miss a payment.

 

Refinance if Necessary: If your financial situation improves or interest rates drop, consider refinancing your loan. This can help you get a better rate and reduce the overall cost of the loan.

 

It All Depends on Your Situation

A 72-month auto loan can make owning a new car more affordable by lowering your monthly payments. However, it’s important to weigh the benefits against the potential drawbacks, such as higher interest costs and the risk of depreciation.

 

By carefully evaluating your budget, long-term plans, and interest rates, you can make an informed decision about whether a 72-month auto loan is right for you. Remember to manage your loan responsibly by making extra payments when possible, avoiding late payments, and considering refinancing options.

 

With the right approach, a 72-month auto loan can be a practical and manageable way to finance your new car.

 

If you’re ready for a car loan, we’d love to help! simply click here to get pre-approved online today.

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