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4 min read Read Published January 30, 2023

Writen by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ways and pitfalls of using loans to buy a car.

Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances with concise, well-researched and well-sourced information that is broken down into complex topics into manageable bites.

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The process of buying a car is far more than deciding to purchase an SUV or a sedan, in black or red. If you’re buying the vehicle using a loan and you’ll need to figure out which repayment terms will make the most suitable for your financial and budget objectives. Car prices are still steep compared to before the COVID-19 pandemic. The median cost of a brand new car during December 2022 was more than $49,500 – 5 percent higher than the previous month one year earlier and more than 20 percent more than December 2020 . The longer your loan period — generally between 24 and , or between two and seven years — the lower your monthly payments will be. But be aware that a lower monthly payment has negatives, and could cost you more over the course of time. For most drivers who are looking to purchase a car for a long time, a lengthy loan is not a good choice. Reasons to avoid taking out a long-term loan longer-term car loans are appealing because the monthly payments will be less than those for short-term loan. Though they allow you to buy a more expensive car while still making payments that are affordable, car loans could put you in a worse spot financially if you’re not careful. More likely to become upside down on loan A longer loan period means that you’re more likely to become upside down sometime in the near future. Being upside on a car loan means that you owe more than the car is worth. This is due to the fact that a larger part of your monthly payments at the beginning of the loan will be spent on interest rather than the principal amount owed. In the event of an upside-down loan, it can cause danger for many reasons. If you are involved in an accident that caused the car is deemed to be a total loss, you could be left needing to pay back the loan for a car you can no longer drive if insurance doesn’t cover it. Additionally that the longer you’re upside-down on the car loan and the longer you’re suffering from negative equity. The idea of trading in a car that has negative equity means you likely won’t get enough money to pay off the loan — and you may even need to take out. Vehicle depreciation Depreciation isn’t a major issue when it comes to used vehicles since during the initial few years. However, long-term car loans on used cars usually aren’t the best idea. A car that is used likely has a significant number of miles, and a longer-term loan lets the miles pile up even higher. Consider, for instance, that you buy a three-year-old car with 36,000 miles and that’s the amount the average American will drive for that length of time. If you took out a 6-year loan and travel 12,000 miles per year, which is the average in America is 72,000 miles. This would mean your car will have 108,000 miles and would be approaching 10 years old when it’s fully paid off. If you opt to sell it earlier then you could find it’s worthless or, even worse, there is no equity whatsoever. More interest Longer-term durations usually are accompanied by higher rates . This is because longer loans are riskier for lenders. With a longer loan term it is more likely that you’ll be affected by a change in your financial situation before the loan is paid back in full. Even if the interest rate on a long-term loan is similar to the shorter-term loan however, you’ll still have to pay more in interest over the course of the loan due to making interest payments over a much longer time. Although your wallet might feel relief from the decreased cost, the price may not be worth the cost. This is a crucial consideration since you consider that the Federal Reserve continues to to tackle the issue of inflation caused by pandemics. When the Fed increases benchmark rates, it drives up the interest rates that private lenders provide for personal loans and auto loans. The average new loan price for the year 2022 was 5.16 percent . However, rates ranged from 3.84 percent for those with the highest credit scores, to 12.93 percent for borrowers with the weakest or the least subprime scores. Stuck with the same vehicle When you sign an auto loan that’s up to 84 months, be sure you’ve and consider whether you’d like to drive that same vehicle throughout the entire term. Seven years is an extremely long duration. Your requirements and needs could shift. However, with a longer-term loan, you will remain in the same vehicle. And in most cases you will have to pay the loan will cost you money. Alternatives to a longer-term auto loan There are other options to obtain a vehicle without taking on the risk that comes along with a long-term car loan. You can lease a car if you are struggling to get accepted for an affordable loan it is possible to . Leasing can provide more affordable monthly payments. Even drivers with fair credit are more likely to get the lease they want, and you can still get behind the wheel of an extremely new car. The disadvantages of leasing are something you should remember. There are limitations on the number of miles you’re allowed to drive during the lease period and charges to cover excessive wear and wear and tear. And, perhaps most importantly is that you’ll have to either or return the car at the lease’s conclusion. Co-signing with a person who has good credit provides potential lenders with additional assurance that you will pay off the loan. This increases the likelihood to receive approval even if you have credit score is not perfect. Consider a large down payment If your goal is to reduce your monthly expenses, making a high is a great option. The greater the amount you deposit initially, the lower the monthly cost will be. Also, you are likely to receive more favorable rate from the lender. Is a long-term car loan worthwhile? A long-term car loan is usually not an ideal option due to the risk of financial loss. Although the lower monthly cost for a long-term auto loan may be appealing initially, it’s best to save extra cash to make the amount of down payment, or select a less expensive car and ensure that the monthly cost is reasonable for a smaller loan. When you are deciding to sign onto a long-term auto loan take into consideration the disadvantages. In addition to costing extra over the term of the loan and a possible risk of being upside down with the loan . What’s more, your vehicle needs may be different within five to seven years, when you’re still paying off the loan. Take a look at alternatives to long-term loans for example, having a larger down payment, leasing a vehicle or obtaining a co-signer with a credit score can help you obtain more favorable loan terms.


Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely taking out loans to purchase the car they want.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to control their finances with precise, well-researched and well-structured information that breaks down complex subjects into digestible pieces.

Auto loans editor

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