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4 minutes read. Published 30 January 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 taking out loans to buy the car they want.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to take control of their finances through providing concise, well-researched and well-sourced information that is broken down into complicated topics into bite-sized pieces.









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Purchasing a vehicle takes far more than deciding to buy an SUV or sedan in black or red. If you're buying the vehicle using the help of a loan it is also necessary decide on what repayment terms make the most suitable for your financial and budget goals. Prices for cars are still high compared to before that COVID-19 epidemic. The cost of a new car for December of 2022 was greater than $49,500 -- 5 percent higher than the previous month one year prior and over 20 percent more than December 2020 . The longer your loan term -- typically ranging from 24 to , or between two and seven years -- the cheaper your monthly payments will be. But be aware that a lower monthly payment has disadvantages, such as the possibility of costing you more over the course of time. For most drivers who are looking to purchase a car for a long time, a lengthy loan should not be a wise idea. There are many reasons not to take out the long-term car loan The longer-term loans are attractive due to the fact that the monthly payments are less than those for the shorter-term loan. Though they allow you to purchase a higher-priced vehicle, they also make the payments affordable, long-term car loans could put you in a worse spot financially If you're not careful. The more likely you are to be upside down on a loan A longer loan term means you are more likely to become upside down sometime in the future. Being upside down on an auto loan is when you have more debt than your car is worth. This is due to the fact that a larger part of your monthly payments early in the loan will be used to pay interest instead of the principal owed. In the event of an upside-down loan, it can be dangerous for several reasons. If you were to have a car accident where the vehicle is considered to be to be a total loss, you may end up paying off the loan for a car you can no longer drive, if insurance isn't covering it. Furthermore the longer you're upside down on your car loan and the longer you're suffering from negative equity. Selling a car with negative equity could mean that you won't get enough money to pay off the loan -- and you may even need to take out. Vehicle depreciation is not a problem for used vehicles within the first few years. But, long-term loans on used cars usually aren't a good idea. A used car likely already has an impressive amount of miles on it and a longer-term car loan lets the miles pile up even higher. As an example, suppose you buy a three-year-old car with 36,000 miles and that's the amount the average American would drive in that length of time. If you took out a 6-year loan and you drive 12,000 miles a year, which is the norm in America will be 72,000 miles. This would mean your car would have 108,000 miles on it and could be close to 10 years old when you pay it off. If you opt to trade it in sooner and you find that it's worthless, or worse, that there is no equity at all. The longer-term loans with higher interest typically have a higher rate of interest . This is generally because longer loans are riskier for lenders. With a protracted loan duration it is more likely that things could impact your financial circumstances before the loan is fully repaid. Even if the interest rate on a long-term loan is similar to the shorter-term loan, you will still have to pay more interest over the course of the loan due to the fact that you'll be paying interest over a much longer time. Although your wallet might be relieved by the lower , the trade-off might not be worth it. This is an especially important aspect to consider because it is the case that Federal Reserve continues to to address pandemic-related inflation. When the Fed increases benchmark rates, it drives up interest rates private lenders offer for personal loans as well as auto loans. The average new loan rate for 2022 was 5.16 percent . The rates varied from 3.84 per cent for those who have the best credit scores up to 12.93 percent for those with the lowest or deep subprime scores. Are you stuck with the same car? Before signing off on a car loan that's up to 84 months, be sure that you've thought about whether you will want to use the same car for the duration of the loan. Seven years is a long time. Your circumstances and requirements might change. However, if you take out a long-term loan, you will remain in the same vehicle. Most of the time, rolling over the loan will cost you money. Alternatives to a longer-term vehicle loan There are other alternatives to obtain a vehicle without agreeing to the risks that come with a long-term car loan. You can lease a car if you are struggling to get an approval for an acceptable loan You may be able to lease a car . Leases can offer more affordable monthly payment. Even drivers with fair credit are more likely to receive approval for a lease however, you are able to be driving an extremely new car. The downsides of leasing are important to take note of. There are limitations on the number of miles you're allowed to drive throughout the lease and fees to cover excessive wear and wear and tear. Most important of all, you'll be required to return or exchange the vehicle when the lease comes to an conclusion. Get a co-signer A with excellent credit rating provides prospective lenders with additional assurance that you'll pay back the loan. This makes you more likely to receive approval, even if your own credit isn't perfect. Consider a large down amount if you are looking to cut down on your monthly expenses by making a large down payment is a great option. The larger the amount you pay down at first then the less the monthly cost will be. Also, you are likely to be offered better rate from the lender. Is a long-term car loan worthy of the risks? A long-term auto loan is not usually an option due to the increased risk to your finances. While the lower monthly payment on a long-term car loan might be attractive initially, it's best to save additional cash to boost the down payment or to select a less expensive car to ensure that the monthly installment is more affordable with a shorter 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 loan's term, you may also end up becoming upside down on the loan . What's more, your vehicle requirements could change within five to seven years, when you're still paying back that loan. Take a look at options for long-term loans, such as having a larger down payment and leasing a car or obtaining a co-signer with a credit score can help you get better loan conditions.


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Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the details of using loans to buy an automobile.



Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing concise, well-studied facts that break down otherwise complicated topics into bite-sized pieces.






Auto loans editor




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