Long Term Low Interest Loans – Despite the appeal of low monthly payments, instead of cushioning the blow of rising vehicle prices, long-term car loans hide the full financial cost of your loan.
According to the Consumer Financial Protection Bureau (CFPB), total consumer auto loan balances will exceed $1.4 trillion in 2022. While the amount of new vehicle loans increased nearly 12%, from $35,385 to $39,540 . In response, lenders and car dealers have started offering long-term vehicle loans to make it more accessible to people.
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In this article, you can better understand how a long term loan affects the total cost of your vehicle and whether a long term loan makes sense for your financial situation.
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You can avail a car loan for a tenure ranging from 2 to 9 years (24 to 96 months). The term of a car loan can vary from one lender or car dealership to the next, but the average loan term for a new vehicle is 69.50 months and the average loan term for a used vehicle is 67.65 months. 
Even though 72- and 84-month car loans have become more common than short-term loans, most car dealers consider any loan over 60 months to be a long-term car loan. Here is a breakdown of short-term vs long-term car loan tenure:
Most car buyers want low monthly car payments. Although extending your loan over a longer term will lower your monthly payments, the term of your car loan can affect the total cost of your loan and possibly the value of your car. The following reasons help explain why a loan term of more than 60 months may not make sense as part of your overall financial goals.
Long-term loans often come with higher interest rates than short-term loans. Even though you’ll enjoy lower monthly payments, a higher rate means you’ll pay more in total interest. If you have a low credit score, the car loan interest rates can go up further.
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With a long-term car loan, you may not be able to pay your principal down high enough to stay above market value. You may owe more on your car than the car is worth, which is called “negative equity” or being “upside down” on your loan.
If you have negative equity and decide to sell your car, you risk owing money to the lender, and if your car is totaled in an accident, that money may not be what you get. Meets the car insurance company, covers the rest of your car loan. In either case, you will be making loan payments for a car that you no longer have access to.
Irrespective of how well your car maintains its value and reliability, unforeseen expenses can affect your finances during the term of the loan. Unexpected expenses, such as medical bills, or a change in your job status that reduces your income can affect your ability to repay the loan.
Although some cars hold their value better than others, both new and used cars lose their value as they age, a process called depreciation. Not all cars depreciate at the same rate, but, on average, new cars lose 40 percent of their value after five years. 
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If you decide to trade in your car or sell it, you could default on your loan, which could result in more than it’s worth. In this case, you will have to pay the difference between the balance of your loan and the value of your car.
Although you may have lower monthly payments, a longer term car loan will cost you hundreds of dollars more in total interest.
People with higher credit scores may be able to get better car loan terms (lower interest financing) on car purchases. If you are considering a long term car loan, it can help you reduce the overall cost of your car purchase. Remember, though, that higher overall interest still accrues with longer-term loans, regardless of credit score. 
If you’re buying a car, you can find ways to lower your monthly car payment that don’t involve long-term loans. From saving for a bigger down payment to looking for a lower interest rate, these sections explain other car loan options you can consider.
Other Long Term Debt Archives
Since new cars depreciate faster in the first year, you may want to consider a used car. By choosing a used car, most of the depreciation has already taken place and the overall value of the car will be lower, which may give you more room for a larger down payment than the car is worth.
You may be able to refinance your loan for a better term. If your credit has improved, you may be able to get a lower interest rate, which can lower your monthly payments. Shop around for the best interest rates or call your bank before you visit the dealership to see if you can get pre-approved for a car loan.
The more money you can save for a larger down payment, the lower your monthly payment will be, which can make your car payment more manageable. Plus, you pay less total interest over the term of your loan. With less it will be easier to pay off your car loan faster.
The chart below shows an example of how reducing your loan size by $5,000 could lower your monthly payment.
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If you want a new car, car leasing can be an option that can lower your monthly payments. Typically, the manufacturer’s warranty covers a leased vehicle, and a lease may even allow you to drive a higher model. 
Although leasing allows you to lease a new car, there are drawbacks, such as limits on the number of miles you can drive and additional costs when you turn in a leased vehicle. 
Whether you’re already in long-term debt, struggling to make car payments or find yourself in default on a car loan, you may have options to lower your interest rate or monthly payments.
If you’re looking to get a new car loan, shop around – for a car that fits your budget and a loan that suits your financial plan, and on the instruments offered for credit building Consider which will help you qualify for the best interest. Evaluate whether to buy or lease your next new car.
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Ana Gonzalez-Ribeiro, MBA, AFC® is a Certified Financial Advisor® and bilingual personal finance author and educator dedicated to helping those in need of financial literacy and counseling. His informative articles have been published in numerous news outlets and websites including the Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. He also founded the personal finance and motivational website www.AcetheJourney.com and co-founded the Kathryn B. Translated the book Financial Advice for Blue Collar America into Spanish by Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working in Support of Education) program and has taught workshops for nonprofits in NYC.
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So what’s the difference between the two? A personal loan can be used for a number of purposes, including buying a car, but a car loan (as the name suggests) is only for buying a vehicle. Each type of loan has its advantages and disadvantages; It’s important to measure and compare them before signing on the dotted line.
A personal loan gives the borrower a lump sum amount from a lending institution (usually a bank), which the borrower can use as he wishes, such as for a vacation, wedding, or home improvement.
A personal loan can be secured against something valuable, such as a vehicle or home, allowing the lender to seize your assets to cover losses if you default on the loan. However, most people choose an unsecured loan, which means the loan is provided without collateral.
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The two main elements that affect the total amount to be paid on the loan are the interest rate and the term of the loan. A personal loan calculator can be a useful tool to determine the impact of these factors.
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