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What is the Longest car Loan Term?

Is it a good idea to take a long-term loan?

by Luis O., CFA, FRM
14 September, 2022 - Updated on 28 November, 2022
in Student loans
what is the longest car loan term

To own a vehicle is one of the most important decisions a person can make. It is not only about choosing the make, color, or model; it is also essential to determine how much money you have to pay for the car or if you want to ask for financing. Many buyers bet on applying for a loan to pay for the car in monthly installments.

Sometimes, the car of our dreams exceeds the amount of money accumulated, and car dealers resort to the strategy of offering a long-term loan. If you have ever heard of this financing, it is common to wonder what the longest car loan term is. 

Contents

  • What’s the longest term on a car loan?
  • Is it a good idea to take a long-term loan?
  • Reasons to Avoid a Long-Term Car Loan
    • Reason one: It’s not worth it in most cases
    • Reason two: The vehicle depreciates
    • Reason three: You pay more interest
    • Reason four: You won’t be able to get rid of the vehicle
  • Alternatives to a Long-Term Car Loan 
    • Leasing a car
    • Make a high down payment
    • Choose a cheaper car

What’s the longest term on a car loan?

Like other types of loans, car loans have a specific time to complete repayment. The ideal loan length depends on several factors, but the main factor is to choose the one with the lowest interest. 

The standard duration for this type of payment is between 12 to 24 months. But you can also extend this payment up to 36 months, which would be three years. However, some dealerships choose to offer long-term financing of 72 to 84 months. 

Is it a good idea to take a long-term loan?

Loans to finance a car have different terms to fit the situation. The most common are as follows:

  • A 36-month loan that you would pay it off in three years
  • 48-month financing to pay off in four years
  • Loan for 60 months to pay in five years
  • 72-month loan to pay in six years
  • Financing for 84 months to pay over seven years
Check ➤  How long does it take to get a Mortgage Approved?

Now that we know that the longest term is 84 months, the question is, is a loan with this term a good idea? The answer is no. We recommend that you avoid at all cost to consider this type of financing.

Car dealers suggest this type of loan to customers who unknowingly plunge into debt for seven years with sky-high interest rates. At the end of the term, you will have paid more than the car cost in interest alone. They are considering saving and investing in a financed car; a period longer than 60 months is considered negative for most people. 

Reasons to Avoid a Long-Term Car Loan

Long-term financing is often attractive to customers because they offer payments less than a standard one. Another benefit is that it allows you to pay for an expensive car with affordable monthly payments. Still, you must consider that you will be years paying for the vehicle without the ability to get out of it until the last installment is paid.

Long-term loans can put you in a dangerous financial situation. Here are some reasons to turn them down:

Reason one: It’s not worth it in most cases

A long-term loan can turn into a sticky situation in the future. While it may seem like a good idea, it’s important to consider the repercussions for years. Besides, think that you will be paying twice what the vehicle costs because the first payments are intended to pay off the interest.

It is also not worth it because if you have a car accident and it is a total loss, you must continue paying for the car, even if you cannot use it if the insurance does not cover it. The more you pay for the vehicle, the longer you will be in a negative balance.

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Reason two: The vehicle depreciates

Long-term loans are also not good because they depreciate over the years. If, after paying off the car, you want to sell it or have some financial gain, the car will not have the same conditions considering that it depreciates during the first years of life.

Reason three: You pay more interest

Although at first glance, the interest rates are lower than the shorter terms, over the years, you will pay more interest for the number of years in debt. This is one of the biggest deceptions because they sell the client the idea of paying fewer fees when, in reality, they are accumulating more payments.

Reason four: You won’t be able to get rid of the vehicle

Before you sign the contract, consider that you must keep this same vehicle for seven years until you pay it off. If you think you want to drive the same car and that it is a good investment, you can do so, but we recommend you think about it and talk to a financial advisor.

Alternatives to a Long-Term Car Loan 

Long-term loans are not the only option you have to pay for a car. Other alternatives do not pose as many risks. You can use any of the following options:

Leasing a car

If you are having trouble getting a short-term car loan, you have the possibility of leasing one. Although it may seem absurd, leasing becomes a great ally to driving a new vehicle for a low cost. There are pros and cons that you should also take into account to make this alternative useful.

Check ➤  How Long is an Appraisal Good for Refinancing?

Make a high down payment

If you want to reduce monthly costs, make a high down payment to lower payments. The larger the deposit capacity, the less you have to pay per month, and you can be part of short-term financing.

Choose a cheaper car

Although it may seem logical, this is the solution in many situations. If you don’t have the full money, you are possibly betting on a car that is very expensive to buy and maintain. In this case, buying a cheaper car and raising money to buy the car of your dreams later is better.

Beyond focusing on luxury, try to put your attention on a reliable and cheaper car. A reliable model is a way to avoid debts that can drown you in the coming years.

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