Buying a car is a significant financial decision and choosing the right loan term can have a major impact on your monthly payments and overall cost. While longer loan terms like 72 months may seem appealing due to lower monthly payments, they come with certain drawbacks. This guide will delve into the pros and cons of a 72-month car loan, helping you determine if it aligns with your financial goals.
Understanding the 72-Month Car Loan:
A 72-month car loan, also known as a 6-year loan, stretches your car payments over a longer period, resulting in lower monthly installments. This can be attractive for individuals with tight budgets or those seeking a more expensive vehicle. However, the extended loan term comes with a price: higher interest rates and a greater risk of being “upside down” on your loan.
Pros of a 72-Month Car Loan:
- Lower Monthly Payments: The primary advantage of a 72-month loan is the reduced monthly payment compared to shorter loan terms. This can free up your budget for other expenses or allow you to afford a more expensive car.
- Greater Flexibility: The lower monthly payments associated with a 72-month loan can provide greater financial flexibility, especially for individuals with fluctuating income or unexpected expenses.
Cons of a 72-Month Car Loan:
- Higher Interest Rates: Lenders typically charge higher interest rates for longer loan terms due to the increased risk involved. This means you’ll end up paying more for the car over the life of the loan.
- Increased Risk of Being Upside Down: With a 72-month loan, you’ll likely owe more on the car than its actual value for a longer period. This can be a significant financial burden if you need to sell the car before the loan is paid off.
- Limited Equity Building: Building equity in your car is crucial for future financial flexibility. With a 72-month loan, it takes longer to build equity, making it harder to use the car as collateral for another loan or trade it in for a newer model.
- Potential for Negative Equity: If the car’s value depreciates faster than you pay off the loan, you could end up owing more than the car is worth. This situation is known as negative equity and can be financially challenging.
Alternatives to a 72-Month Car Loan:
- Shorter Loan Term: Opting for a shorter loan term, such as a 48-month or 60-month loan, will result in higher monthly payments but lower overall interest costs. This option is ideal for individuals who can afford the higher payments and want to build equity faster.
- Larger Down Payment: Making a larger down payment can significantly reduce the loan amount and shorten the repayment period. This can help you avoid the pitfalls of a 72-month loan and save money on interest.
- Used Car Purchase: Purchasing a used car instead of a new one can significantly reduce the overall cost and minimize depreciation. This option can be a wise choice for individuals on a tight budget.
Additional Considerations:
- Credit Score: Your credit score plays a crucial role in determining the interest rate you qualify for. A higher credit score will result in a lower interest rate, making a 72-month loan less financially burdensome.
- Income Stability: If your income is stable and predictable, you’ll be in a better position to handle the longer repayment period of a 72-month loan.
- Personal Financial Goals: Your overall financial goals should guide your decision. If you prioritize building wealth and minimizing debt, a shorter loan term might be more suitable.
The decision to take out a 72-month car loan should be carefully considered, weighing the pros and cons against your individual financial circumstances. While the lower monthly payments can be appealing, the higher interest costs and increased risk of being upside down should not be overlooked. By exploring alternatives and carefully evaluating your financial situation, you can make an informed decision that aligns with your long-term financial goals.
Additional Resources:
- Space Coast Credit Union: 60-Month vs. 72-Month Auto Loan Comparison
- Rocket Loans: Should You Get a 72-Month Car Loan?
FAQs:
Q: What is the average interest rate for a 72-month car loan?
A: The average interest rate for a 72-month car loan varies depending on your credit score and other factors. As of November 2023, the average interest rate for a 72-month car loan is around 7.24% for new cars and 7.98% for used cars.
Q: Is it better to get a car loan from a bank or a dealership?
A: It’s generally recommended to get pre-approved for a car loan from a bank or credit union before visiting a dealership. This will give you a better idea of what you can afford and allow you to negotiate a better interest rate with the dealership.
Q: How can I improve my chances of getting a lower interest rate on a car loan?
A: Improving your credit score, making a larger down payment, and having a stable income can all help you qualify for a lower interest rate on a car loan.
Q: What should I do if I can’t afford the monthly payments on my car loan?
A: If you’re struggling to make your car loan payments, it’s important to contact your lender as soon as possible. They may be able to work with you to modify your loan terms or offer other assistance.
Advantages of a 72-Month Loan
With these auto loans, you can spread out the cost of a car over 72 months, which will save your monthly payment amount compared to a shorter loan. Because 72-month auto loans are so popular, you may find it easier to get a good interest rate because you will be able to compare quotes from different lenders. If you’re also thinking about 84-month auto loans, keep in mind that the longer the loan term, the higher the risk for the lender. As a result, you might have an easier time getting approved for a 72-month auto loan as opposed to an 84-month one.
Sometimes the best way to afford a higher-priced used car or a new car without having a large monthly car payment is to get a 72-month loan. A good example would be a large family who budgets carefully. They might be looking for a big SUV or van to accommodate everyone at once, and they might value reliability and a newer car so they won’t have to worry about maintenance. They might be able to afford ownership with a 72-month car loan and still shop at a higher price point.
Choosing a 72-month auto loan can give you some extra money for savings and other priorities that may arise during the loan term, even if a 60-month loan is technically within your current budget.
Signing up for a longer loan term might help you balance your budget more easily over time, but it may not be for everyone.
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Article Quick Takes:
Although buying a car with a long-term auto loan has increased recently, not everyone should make this decision. In many respects, long-term auto loans are a reaction to growing auto costs as well as to cars becoming more dependable and lasting longer.
You must consider your personal requirements and tastes when determining whether a 72-month auto loan is the right choice for you. There are a few things to consider.