With lower monthly payments, 5-year auto loans leave you more discretionary income to pay down other debt, save more, or just enjoy life! A 5-year loan is usually more affordable month to month. Drawback: These loans cost more overall. 5-year loans tend to have higher interest rates.
Auto loans over 60 months are not the best way to finance a car because, for one thing, they carry higher car loan interest rates. ... Experian reveals that 42.1% of used-car shoppers are taking 61- to 72-month loans while 20% go even longer, financing between 73 and 84 months.
There's really only one benefit of a long-term auto loan that spans six to seven years or even longer. The longer the car loan, the smaller the monthly payment. By taking out financing with an extended loan term, you can potentially buy a more expensive car and still stay within your monthly budget.
Why Long-Term Car Loans Aren't a Good Idea
Long-term car loans typically carry higher interest rates than shorter-term loans. And even if you can find a long-term loan with a low interest rate, making payments for seven or eight years will likely add up to more interest over time compared with a shorter-term loan.
How to Pay Off Your Car Loan Early
In some cases, however, a dealer may negotiate a higher interest rate with you than what the lender offers and take the difference as compensation for handling the financing. ... In general, you can usually get lower interest rates on a new car through a dealer than on a used car.
The answer is that it usually isn't the bank doing the lending but rather the automaker itself. The way an automaker can make money with a zero percent deal is simple: It still earns the same amount it would earn on any car deal, but now the money is earned over a longer span.
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.
Many financial experts recommend keeping total car costs below 15% to 20% of your take-home pay. ... For example, if your monthly paycheck is $3,000, your car payment would be about $300 and you'd plan on spending another $150 on automotive expenses.
But a five-year loan often has a monthly payment that is too high for them, and they end up financing for a longer term even if it costs them more down the line, Zabritski said. ... In fact, there are many reasons why you shouldn't choose a long car loan. Edmunds recommends a 60-month auto loan if you can manage it.
Even with poor credit. ... Some lenders and credit unions, however, offer extended loan terms of anywhere from 96 months (eight years) to 120 months (10 years). Although the lower monthly payment may seem attractive, a decade-long auto loan could leave you paying for a vehicle that's worth very little 10 years from now.
If the vehicle you're looking to finance is older than 10 years, consider using a credit union or a local car dealer that can provide in-house financing. Navy Federal, for example, is a nationwide credit union that may be able to offer you a great auto loan rate for an older car if you're eligible for membership.
Yet No Comments