72-Month Auto Loan - A Budget Saver Or a Money Waster?

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Most people, accustomed to five year auto loans do not realize that they may get longer term auto financing, such as 72-month loan. While such loans may seem convenient for some, there are few considerations to make before signing up for them.

Why 72 months?

6 years is a long time, way longer than many people keep their cars for. Since 72-month loans feature higher interest rates than 60-month loans many people may wonder why consider them at all. Well, same people would not consider 36-month loans for their vehicle financing needs, even though they have even lower interest rates. The key factor for consumers is the loan affordability, most commonly measured in terms of monthly payment amount. The amount you pay every month on your car loan depends on your loan duration. Provided the amount financed is the same, a 5-year loan would feature lower payments than a 3-year loan. Same is true when comparing 72-month loans with standard 60-month loans. Such a difference commonly allows people to either get a lower payment for the same vehicle, or buy a more expensive vehicle having the same payments as a lower-cost car would have just by extending the loan repayment duration.

Is 72-Month Car Loan Right For Me?

Your decision whether to consider a 72-month loan or not should be based on how long you intend to keep your car. If you are one of the many that trade their car each time a new model line gets to the market, a 72-month car loan is the one to stay away from, as you would end up having negative equity when trading your car in. This could result in problems with financing your new car, forcing you to come up with a significant down payment or to face unfavorable financing terms. However, if you are one of the few that keep their cars for many years, a longer loan may be a great budget solution for you.

72-Month Loans Are More Expensive Overall

72-month car loans are great in a way that they feature lower monthly payments, but they do have a major drawback - higher borrowing cost. It results from a combination of two factors: higher interest rate and longer term. Considering everything else equal, a higher interest rate would always result in higher payment. Besides, the longer it takes you to repay the loan, the less principal you pay off with each payment. Therefore, greater affordability of 72-month auto loans always comes packaged with higher overpayment amounts.

There Are Ways To Enjoy Lower Payments Without Overpaying Extra!

However, 72-month loans may be a great solution to many people, especially for those on the budget, as well as the ones that see their paycheck amounts fluctuate a lot. Many people choose 72-month auto loans just because their pay is highly dependent on seasonality of the business they work for. The trick that may help out to pay less in interest charges is to pay more than a minimum required by your lender in the months when your pay is good. You are not restricted to 72-month term, and most, if not all, lenders do not endorse any penalties for early loan repayment. This way you may ensure low payments during months when you are on the budget, and pay off your loan early by making extra contributions when your pay is good. Such payment scheme especially benefits students that may only work full-time during summer time.

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