Top Reasons Why a 72 or 84 Month Auto Loan is Not Worth It

The average car loan term has been steadily climbing, and it’s not hard to understand why: the longer you stretch out a car loan, the less you have to make each month in car payments. So what’s wrong with saving a little extra each month? Why is a 72 month auto loan term – or an 84 month auto loan term – not a great idea?

Lower Monthly Payments Don’t Mean Longer-Term Savings

The best loan is the one that fits your budget and financial goals. But in general, the longer your auto loan stretches, the more you’re going to pay in auto loan interest. Average auto loan interest rates on 72 or 84 month term auto loans are higher than for 48 or 60 month loans. Higher auto loan interest rates mean that you’re paying more in interest over the length of the loan, even if each monthly installment payment is smaller.

Let’s do the math to see how that works:

Imagine you have two options for a $30,000 car loan. One is a 72 month loan at a 7.99% APR and the other is a 60 month loan at 6.50% APR. The 72 month loan would require a monthly payment of $526, with a total of $7,861 going to interest over the next six years. For the 60 month loan, your monthly payment would be $587 each month, with $5,219 going to interest.

The bottom line? The 60 month loan has a slightly higher monthly payment because you have to squeeze in all of your repayment over five years instead of six. But choosing the 60 month loan means you’re saving over $1,500 in interest!

Focus on Negative Equity So You Don’t Wind Up Underwater

Big savings aren’t the only reason to go for shorter auto loan terms. Long-term loans increase your odds of having negative equity in your car. Equity means the value of an asset (like your car), minus any debts or liabilities (your car loan). Negative equity (aka being upside-down or underwater) means you owe more on your loan than your car is worth. If you want to trade your car in to buy a new one before you’ve paid off the loan, you will have to pay off the rest of what you owe to your lender. And if your car is totaled or stolen, you’ll still owe the full amount of the loan, even though your car insurance will only pay off the value of the vehicle.