A 72-month car loan is far from unheard of in today’s auto financing climate. However, the drawbacks often outweigh the benefits of a long-term loan. Whether or not you should opt for a loan this long has more to do with your credit and the vehicle you choose. Here’s how a 72-month loan might look, and why it could mean paying much more than you bargained for.
How Loan Terms Affect Loan Amounts
Loan terms refer to how long you’re going to be making payments. Terms are most often referred to in months, with car loans typically starting at 24 months and stretching all the way to 84 or even 96 months.
The longer the term you agree to, the less you pay each month. However, due to interest charges, the longer you pay on a loan, the more you end up paying overall. Interest is what it costs to borrow money, and it’s stated as a percentage. It’s called your loan’s interest rate or, on a yearly basis, its annual percentage rate (APR).
Interest rates vary depending on many things, the largest of which is your credit score. Most auto loans now are simple interest loans, which means that interest is charged daily based on the loan balance (what you owe) – known as an interest charge.
With these two factors – loan term and interest rate – are combined, you could end up with interest charges that greatly increase the total amount you pay for your vehicle.
Remember that for a given loan amount, the longer the loan, the less you pay each month. But, paying less means each month means the loan balance is higher each month, so you end up paying more in interest charges over the life of the loan.
In fact, you can see how much of your payment reduces the principal balance on your monthly loan statement, as well as the part of your payment that covers the interest charges.
What a 72-Month Loan Looks Like
Let’s take a look at how loan terms affect what you pay overall.
Let’s say you’re financing a used car and borrowing $16,000 for 72 months. You’re doing this with poor credit at an interest rate of 16%. Here’s what your auto loan could look like based on different loan terms:
To get an example of how different loan terms affect the overall cost of a loan, you can play with the numbers to see the difference using our Monthly Payment Calculator.
As you can see, getting the shortest loan you can afford saves you money overall. However, a shorter loan term means a higher monthly payment, and it can be difficult to manage that payment at times.
This is why it’s extremely important to get a reliable, affordable vehicle for the shortest loan term you can afford. It’s not just about how long your loan is, but about how you balance the monthly payment with the interest charges.
Risks to Long-Term Car Loans
The increased cost of a loan due to interest charges isn’t the only risk you face when you have a 72-month loan. Longer loan terms also come with some risks that could leave you paying for a car long after it makes sense.
Some of the risks you face with a loan term of 72 months or more can include:
- Negative equity – Negative equity is when you owe more on your loan than the vehicle is worth. Having it is common for a short time. The longer you stretch your loan term, the longer you risk being upside down in your loan, which can lead to trouble if you want to sell, trade in, or refinance the car.
- Maintenance – Seventy-two months – or six years – is a long time to be making payments on a vehicle. A lot can happen during that time, including excessive wear and tear, mechanical issues, and accidents, some of which may be too expensive. Do you really want to be stuck paying a loan for a car you can’t drive anymore?
In order to combat these risks, be sure to set a realistic budget, and stick to it. Choose an affordable, reliable vehicle that holds its value, and be prepared with a down payment.
A down payment can be one of your best lines of defense against negative equity, and a good way to decrease your overall loan cost, no matter how long it is.
Ready to Find a Car Loan?
If you’re ready to find a loan that can work for you, then you’ve come to the right place. At Auto Credit Express, we want to help you find a dealership that can work with you whether you have bad credit, no credit, or even a bankruptcy on your credit reports.
We work with one of the nation’s largest networks of special finance dealers. These dealerships have access to the lenders you need when you’re struggling with credit issues. Not all lenders work with all credit situations, so before you go through the hassle of spending time and money driving from dealer to dealer, let us help.
To get the process started today, simply fill out our free, no-obligation auto loan request form, and we’ll work to connect to a dealership in your area.