Taking out a 72-month auto loan can make sense in some situations, but most financial experts don’t consider it a good idea, generally speaking. Next up are three major drawbacks of a 72-month loan.
1. You May End Up Underwater On Your Loan
Cars depreciate in value over time. Depending on your initial loan amount, interest rate and how quickly and much your car depreciates, the amount you still owe on a 72-month auto loan might come to exceed the car’s resale value. This is what’s known as being “underwater” or “upside down” on the loan, or having negative equity.
New cars depreciate especially quickly, losing a lot of their value within the first couple of years. Some experts say a car loses 10% of its value the moment you drive it off the lot. Depreciation rates differ by car, so your vehicle could lose its value even faster.
If you do decide to take out a 72-month loan, it may be a good idea to purchase gap insurance, which covers the difference between the car’s depreciated value – the amount your car insurance provider would pay – and what you owe on the vehicle if it’s totaled, damaged or stolen.
2. 72-Month Car Loan Rates Are Typically High
Lenders typically believe that borrowers who take out a loan with a longer repayment term are more likely to default on the loan. To offset the added risk that lenders tend to perceive, they may charge a higher interest rate or annual percentage rate (APR) than they otherwise would. A high interest rate means you’ll end up paying more for the total cost of the car when all is said and done and you’ve made all your loan payments. Paying more money in interest has no benefit, and some people consider it to be wasted money.
3. You May Have To Pay For Car Repairs While Still Paying Your Loan
If you take out a long-term auto loan, your repayment term could be lengthier than the car’s warranty, leading to financial problems if you have to cover repair costs out-of-pocket while still making car payments.
For instance, let’s say the warranty lasts 60 months but your car loan has a 72-month term. When the warranty ends, you may have to pay for a major car repair on top of your monthly car payments. Fortunately, many auto repair financing options are available if you find yourself in this situation and need a little extra help, but the downside of this strategy is that you may have to pay repair financing costs in addition to your car payment.
FAQs
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.
Is it smart to do a 72-month car loan? ›
A 72-month auto loan isn't always the best option. Compared to a 60-month loan, you'll pay interest for another 12 months, which increases the overall cost of borrowing. A 72-month auto loan also puts you more at risk of being upside-down on the loan, which is owing more than your vehicle is worth.
Is 5.9 APR good for a car 72 months? ›
A 72-month loan for a car is a long-term loan, and long-term loans typically come with higher interest. While long-term loans translate to lower monthly payments, they result in more interest paid over the life of the loan. With that said, an interest rate of around 5% for a 72-month auto loan is considered ideal.
What is the best length of a car loan? ›
NerdWallet typically recommends keeping auto loans to no more than 60 months for new cars and 36 months for used cars — although that can be a challenge for some people in today's market with high car prices. Ultimately, choosing the best auto loan term depends on balancing cost, affordability and your specific needs.
Is it better to have a longer car loan? ›
Key takeaways. A longer loan term means you'll get a lower monthly payment, but you'll also pay more in interest. A shorter loan term is better, as it helps minimize borrowing costs and the risk of being upside-down on your loan.
Will car loan rates go down in 2024? ›
Auto loan rates are expected to stop rising and possibly start descending in 2024, but they'll likely remain elevated in comparison to recent years (alongside the broader interest rates environment).
How to pay off 72-month car loan early? ›
If you want to pay off your loan early, here are six ways to make it happen:
- Refinance your car loan. ...
- Make biweekly payments. ...
- Round up your payments. ...
- Put extra money toward a lump-sum payment. ...
- Continue making your monthly payments. ...
- Opt out of any unneeded add-ons.
The total interest amount on a $30,000, 72-month loan at 5% is $4,787—a savings of more than $1,000 versus the same loan at 6%.
How much is a $40,000 car payment for 72 months? ›
If you take a car loan of $40000 at an interest rate of 4.12% for a loan term of 72 months, using an auto loan calculator, you can find that your monthly payment should be $628. When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.
Why is my APR so high with good credit? ›
Factors that increase your APR may include federal rate increases or a drop in your credit score. By identifying changes to your APR and understanding the actions that led to your increased rate, you can take steps that may help reduce your interest charges in the future.
If you have been qualified for a $30,000 car loan, the monthly payment depends on the amount of the down payment, interest rate, and loan length. For example, with a down payment of $2,500, an interest rate of 5%, and a loan length of three years, you will have to pay $824.20/month.
What is a good APR for a car? ›
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.
What is too long for a car loan? ›
NerdWallet recommends financing new cars for no more than 60 months and used cars for no more than 36 months. These maximums can help you avoid some of the negative outcomes of long-term loans.
Should I finance a car for 72 months? ›
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.
Why should you not finance a car for more than 4 years? ›
Long-term auto loans have smaller monthly payments but can significantly increase the total cost of the vehicle. Lenders typically charge higher interest rates for long-term auto loans. Long-term auto loans can result in negative equity, which means you owe more than the car is worth.
What is a disadvantage of paying for a car with a long-term loan? ›
Higher interest – Vehicles purchased with long-term financing typically come with lower monthly payments but possibly a higher interest rate. Auto finance companies set interest rates based on the level of risk and consider long-term loans riskier than others.
Are 7 year car loans worth it? ›
An 84-month auto loan can mean lower monthly payments than you'd get with a shorter-term loan. But having as long as seven years to pay off your car isn't necessarily a good idea. You can find a number of lenders that offer auto loans over an 84-month period — and some for even longer.
How many years of car loan is best? ›
However, if the burden of monthly EMI that short-term loans get problematic, choosing a long-term, anytime within 7 years would be wise. The monthly pay out would be reduced compared to short-term loans.
What is the smartest car loan term? ›
So, although your monthly payments will be lower for a 72-month loan than a 48-month one, you will pay more for the car. Moreover, many lenders raise the interest rate percentage as the length of the loan increases. You may pay a higher interest rate for a 36-month loan than a 24-month loan.
What is the rule of 72 on a car loan? ›
Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double. So, 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double.
