How long can you stretch a car loan?

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If you’re planning to buy a new car with a car loan, the term of that loan can influence how large, or small your monthly payments are. It also influences the total amount of interest charged so there is more to deciding a loan term than just the monthly payment.
 
It might be tempting to stretch a car loan out for as long as possible to lower the monthly amount or to be able to borrow more. That’s a perfectly acceptable strategy as long as you consider the total cost of the car loan as well as just the monthly cost.
 
Car loan terms
The term is the number of months you have to pay back the loan in full. This is usually one of the headline items when shopping for a loan and a key consideration when selecting one. The term not only influences the monthly cost of the loan but also the total cost of the loan. It is an important consideration when researching any kind of finance.
 
Lenders set their own loan terms but typically they will be 36, 48 or 60 months. The longest term I have seen has been 84 months but this is rare. That’s 7 years to pay back a car loan. Not only is that an expensive loan to service, that’s also a long time to own the same car!
 
Pros of having a longer car loan term
There are two main positives for having a longer car loan term, lower monthly payments and a larger loan amount. Lower monthly payments are self-explanatory. Stretch the loan and your monthly payments reduce accordingly as the same amount, less interest, will be payable in more instalments.
 
You could also borrow more money over the term. This could allow you to buy a better or newer car.
 
Cons of a longer car loan term
There are downsides to longer car loan terms though. Total cost of the loan and depreciation. As car loans charge monthly interest, the more months your loan runs for, the more interest you will be charged. While your monthly payment may be lower, the total interest you may have to pay over the lifetime of the loan may be significantly higher.
 
Another consideration is depreciation. Longer loans means you have the car for a longer period. If you buy new, depreciation is a significant factor. You may find that the value of your car falls at a faster pace than the loan amount. Sort of like negative equity for cars.
 
Careful consideration should be given to your car loan term to make sure you are getting the right loan for your circumstances. If you need some expert guidance, your nearest Car Nation Canada dealership will be happy to help!
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