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Pros and Cons of Long-Term Auto Loans

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These days, it seems like long-term auto loans are all the rage. Many car buyers here in Miami are opting for 72-month and 84-month loans, with some even choosing 96-month loans. If you are planning to buy a car soon and you have good credit, you may be able to extend your loan term. But should you? Read about the pros and cons of long-term auto loans below.



Low monthly payment

This is the key advantage of long-term auto loans and the main reason people get them. For people who need to buy a car but whose budgets are tight, long-term car financing make it possible for them to make the auto purchase and still put food on the table. By extending the loan term by a couple more months or years, the monthly payment drops to a more manageable amount.

A lower monthly payment is a blessing for individuals who have a lot of other financial responsibilities.

The monthly car payments aren’t the only thing car buyers pay for—they also have to shoulder expenses related to utilities, auto insurance and groceries, among others. The longer loan terms help people fit all financial obligations into their budget.

More expensive vehicle selection

According to TrueCar, the average price of a new vehicle is now $30,592. Without a doubt, new cars are more expensive than ever. However, they can be lighter on the budget thanks to long-term auto loans. Since longer loan terms drive down the cost of the monthly payment, car buyers can choose a more expensive vehicle and not be burdened by a hefty expense. If long-term auto loans weren’t available, car buyers wouldn’t be able to afford pricier cars and would have to make do with the limited, more affordable selection.

It is necessary to point out that when buying a car, consumers must keep their monthly payments within their budget, specifically within 20 percent of their gross income. They can buy a more expensive vehicle with a long-term loan, so long as they abide by this general rule.



Higher interest

Long-term auto loans make repayment more manageable with lower monthly payments, but these are more costly overall because of higher interest. The longer the repayment period, the higher the interest. Extended loans come with higher interest because there is more risk when lending for a longer period of time. So much can happen within the chosen repayment term (such as accidents, major damages, etc.) and the uncertain future may bring hefty losses to the auto loan lender. High interest is charged to protect lenders from potential losses.

Negative equity

Vehicles depreciate rapidly. According to, a new car loses as much as 11 percent of its value immediately after it is driven off the lot and becomes worth 37 percent of its purchase price after five years. In the case of long-term auto loans, the vehicle’s depreciation proceeds quickly but the repayment of the loan is rather slow. As a result, consumers end up with negative equity. The longer the loan term, the longer they will be in the ‘upside down’ position, wherein they will owe more than the vehicle is worth.

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