Is 72-month car loan bad?
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.
A 72-month auto loan isn't always the best option. Compared to a 60-month loan, you'll pay interest for another 12 months, which increases the overall cost of borrowing. A 72-month auto loan also puts you more at risk of being upside-down on the loan, which is owing more than your vehicle is worth.
Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.
But the reality is, given how expensive new and used cars are today, this rule is not only ignored but also outdated. This is why Edmunds recommends a 60-month auto loan if you can manage it. A longer loan may have a more palatable monthly payment, but it comes with a number of drawbacks, as we'll discuss later.
- With more time for interest to accrue, you will pay more. ...
- Lenders usually charge higher interest rates for long-term auto loans. ...
- You have a higher risk of developing negative equity. ...
- You could fall into a cycle of negative equity. ...
- Repair and maintenance costs increase with a car's age.
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan.
Higher interest
Even when the interest rate on a long-term loan is the same as a shorter term, you will still pay more in interest over the life of the loan. That's because you will make interest payments for far longer.
Your car payment won't go down if you pay extra, but you'll pay the loan off faster. Paying extra can also save you money on interest depending on how soon you pay the loan off and how high your interest rate is.
If you're thinking of buying a car but the monthly payments on a 60-month loan are too high, going up to a 72-month loan can be tempting. However, if you feel that this is necessary, it could be a sign that you're overextending yourself financially.
About seven out of 10 people borrow money to buy their cars, and a car loan is one of the largest financial obligations you can have. If you're one of them, you may have a loan that will take you 60 or 72 months to pay off. That's five to six years!
What is a good car payment?
According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%. You can use a car loan calculator to calculate a monthly payment within your budget.
Car payment statistics
The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.
Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double. So, 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double.
- Refinance your car loan.
- Split Your Bill Into Two Biweekly Payments.
- Make a large down payment.
- Round up your car payments.
- Review additional car expenses.
Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment.
The Bottom Line
A longer-term car loan will have lower monthly repayments, but it will be much more expensive overall because there is more time for interest to accrue. A shorter-term car loan is more expensive each month but will save borrowers interest costs.
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.
A target credit score of 661 or above should get you a new-car loan with an annual percentage rate of around 7.01% or better, or a used-car loan around 9.73% or lower. Superprime: 781-850. 5.64%. 7.66%.
Some lenders charge a penalty for paying off a car loan early. The lender makes money from the interest you pay on your loan each month. Repaying a loan early usually means you won't pay any more interest, but there could be an early prepayment fee.
When deciding on the length of an auto loan, it's important to consider the overall cost of the loan, including the interest rate and the monthly payments. A longer auto loan may result in lower monthly payments, but you will end up paying more interest over the life of the loan.
Why should you not finance a car for more than 4 years?
You'll Pay More Interest
Long-term car loans typically carry higher interest rates than shorter-term loans. And even if you can find a long-term loan with a low interest rate, making payments for seven or eight years will likely add up to more interest over time compared with a shorter-term loan.
Key takeaways
A shorter loan term is better, as it helps minimize borrowing costs and the risk of being upside-down on your loan.
Splitting the payment in half and paying twice a month (semi-monthly) saves money. Why? On an auto loan, interest compounds daily. By paying half your payment early, you actually cut down the principal faster, thereby reducing the corresponding compounding interest you'll pay over the life of the loan.
If you have a 60-month, 72-month or even 84-month auto loan, you'll pay quite a bit in interest over the loan term. As long as your loan doesn't have precomputed interest, paying extra can help reduce the total amount of interest you'll pay. You'll pay off your loan faster.
Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.
