Risks associated with a long-term car loan

Long-term car loans are loans with terms of 72 months (6 years) or more. These types of loans are becoming more and more popular. In 2015, the average loan had a term longer than 72 months, up from around 65 months in 2009 and there are terms available today for 96- and 108-months.​​

Pros and cons of a longer-term car loan

Pro

  • lower regular car payments may be ​an advantage in the short term by helping you manage the cost of a new car more easily ​

Cons​

  • may encourage you to buy "more car" than you can really afford
  • may mean paying more interest over the term of the loan
  • may result in greater "negative equity" risk -- if your car is worth less than the amount you owe on your loan

​Paying more for the same car

The total cost of the car is higher when you opt for a longer-term loan because of the interest you will pay over the loan's term. In the example below, you would pay more than twice as much in interest, increasing Car B's total cost by more than $2,700.​
Price of
the car
Interest rate
on the loan
Term of the
loan (months)
Cost of the car
with interest
Interest
paid
Car A $25,000 5.00% 36 $26,973.81 $1,973.81
Car B $25,000 5.00% 84 $29,681.21 $4,681.21

*This example is for illustrative purposes only.​​​​​​​

Buying "too much" car

In the example below, the regular payments are identical even though Car A is nearly twice as expensive as Car B. In the case of Car A, you would need to ensure that you could afford the regular payments and all the other carrying costs for twice as long and be comfortable paying close to $3,500 more in interest.

Price of
the car
Interest rate
on loan
Term of the
loan (months)
Regular
payment
Interest
paid
Car A $29,775 5.00% 72 $479.50 $4,750.75
Car B $16,000 5.00% 36 $479.50 $1,263.24

 *This example is for illustrative purposes only.​

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