With the average new car transaction price hovering around $31,000, it’s becoming more and more tempting to take out longer loans to make car payments more affordable. However, there are a number of reasons you should avoid doing so.
Here’s why you should say no to 72-month car loans.
You’ll owe More Than the Car is Worth
New cars drop in value the moment you’ve driven off the dealer’s lot after signing a purchase contract. In other words, unless you negotiate the deal of a lifetime, you will likely owe more than the car is when you pull into your driveway. What’s more, that value will continue to fall each month you own the car.
Meanwhile, your monthly payment stays the same.
On the other hand, with a shorter-term loan like 36 or 48 months, you have a good shot a building equity in the car before it’s paid off. Longer-term loans of 72 and 84 months will lose every race with depreciation.
So yes, you’ll have lower payments, but you’ll also owe more than the car is worth.
It Could Be That Way for the Rest of Your Life
Let’s say you sign a 72-month loan, the car conks out in 60 months in and you have to get a new one. “No problem” you say, “I’ll just get another loan.” And well you might.
Meanwhile, the last year of the original loan still has to be paid off.
So, you roll it into the cost of the replacement car, meaning the 72-month loan you get on that one is now more like an 84-month loan. If depreciation kicks butt on a 72-month loan, wait until you get a load of what it does to an 84-month loan. You’ll be even farther behind on the replacement car.
Now, let’s say this car conks out before the loan is paid off— See where we’re going here? It can be an infinite loop of debt.
You’ll Pay More in the Long Run
While it’s true the monthly payment on a 72-month loan is considerably less than that on a 36-, 48- or 60-month loan, you’ll ultimately pay more money when you factor in the interest charges.
What’s more, going with a loan in the 72- or 84-month range can tempt you into buying a far more expensive car than you really need. Either way, it’s false economy. It looks like you’re paying less, but you’ll actually pay more.
This is why it’s always best to get the shortest auto loan you can afford, like those from RoadLoans.
Maintenance and Repairs Come into Play
When cars get into the six and seven year-old range, parts begin to fail and maintenance costs get more expensive. Meanwhile, you’re faced with covering these additional expenses, right along with the very same monthly note you’ve been paying for the last five or six years.
As good as that lower car payment sounded when you were all excited about driving around in your new car, it will feel like an anchor hanging around your neck when you start having to cover repair bills too. Especially when you look at how your car has aged over that time period too.
What’s more, if you let that lower car payment sucker you into getting a more complex car, you’ll have an even longer list of issues with which to deal as things begin wearing out. So before you agree to stretch a loan out as far as possible, consider getting the lowest possible price on a car you can comfortably afford to pay off in no more than five years.
A long story short, say no to 72-month loans.