4315 North Service Road, Burlington, ON, L7L 4X7
My Garage

Are longer term auto loans a good idea?

Are longer term auto loans a good idea?

We are seeing more queries than ever for longer term auto loans. Loan terms of 72 or 84 months are becoming increasingly popular. But are longer term auto loans a good idea?

As cars get more expensive and we accrue more monthly outgoings, we are increasingly looking to reduce our monthly payments wherever possible. One way of doing that is by extending the term of some of our outgoings. That’s where a long term auto loan comes in.

Rather than squeezing your payments into a 36 or 48 month period, you could extend it to 72 or 84 months.

Pros of long term car loans

There are a couple of benefits to a long term car loan. One of which we touched on already.

  • You can lower your monthly payments by borrowing over the longer term. This means you borrow the same amount of money but with a lower monthly payment. This will mean paying more interest though.
  • The other pro of a long term car loan is the ability to borrow more. If you want to upgrade your car to something more expensive, borrowing more over a longer term allows you to do that.

Cons of long term car loans

There are some significant downsides to long term car loans you should be aware of.

  • Borrowing over a longer term means you will pay more interest. As you pay interest on every payment, making more of those payments means paying more interest. Remember, interest is charged on the total amount of the loan, not the monthly amount you pay.
  • You could go upside down with a long term car loan. It’s easy to get into negative equity with a longer term loan where the amount you owe is higher than the value of the car. This won’t make much difference if you plan to keep the car but if you want to sell it or you need to claim on insurance, you may end up out of pocket.
  • Finally, a lot changes in 84 months. Sure, a lot can change in 2 or 24 months but 7 years is a long time. What if your situations changes drastically and you still have several years of a car loan to pay off?

Longer term auto loans are not for everyone. They may seem like a way to buy your dream car while being able to afford the payments but they can be an expensive way to access credit. There may be much cheaper ways to get what you want and Car Nation Canada can help.

Categories: News

Tags: ,