Typical car loans are for between 36 and 60 months, or three to five years. Over the past few years, we have seen longer term loans being offered. Some extending up to 84 months, or 7 years. Are long term car loans a good idea?
As usual, much depends on your particular situation but we can highlight some pros and cons of long term car loans to help you decide.
Pros of Longer Term Car Loans
Longer term car loans were developed as a result of higher priced cars and continue to be used mainly to allow more people to afford better cars.
Specific benefits of a long term car loans include:
Lower monthly payments – However much you borrow, if you borrow over a longer term, your monthly car payments will be lower. This can allow you to borrow more or borrow the same just with a lower monthly amount.
Afford an electric vehicle – A specific use case for longer term car loans is to afford an EV. While they are more expensive to buy than a gas car, they are cheaper to run. Longer term car loans help overcome that initial expense and make it much more affordable.
Buy a new or premium vehicle – Long term car loans can also help you buy a newer or better car than you otherwise would. You can borrow more without increasing your monthly payment which can be enough to get you the car you dream of rather than just the car you can afford.
Cons of Long Term Car Loans
Long term car loans do have downsides though.
More interest over the term – Depending on your interest rate, you may end up paying more interest over the term of the loan. You may be paying a lower rate but you’ll be paying it for longer. You’ll have to work out which makes better financial sense for you.
Loan could last longer than the car – Do you tend to keep cars for a long time? If not, you could be paying the loan long after you sold the car. You can refinance or consolidate of course but otherwise, the term of the loan is longer than many people keep their cars.
Easier to go upside down – If you’re buying a new car, you will have to live with negative equity or being upside down for longer. This is when the car is worth less than the loan amount. It happens in most car loans for new vehicles but is exacerbated in long term car loans.
As you can see, long term car loans have pros and cons. Just how much of a pro or con depends on your particular situation. Make sure to assess your position carefully before committing to a long term loan.
Alternatively, talk to one of our Bronte car loan team to discuss your needs.
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!