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Does A 72-Month Car Loan Make Sense For You?

September 21, 2020 | Vehicle Financing

Having a car is essential for most families, but many may not have the cash to purchase a car outright. Luckily, a wide range of financing options is available.

Long term auto loans, such as 72 months in length, offer buyers an opportunity to pay lower monthly payments, which can be a very attractive option. However, this type of financing might not be right for everyone. In this post, we provide you with the facts so you can decide if a 72-month car loan makes sense for you.

What Loan Option Is Best For Me?

Many people take out financing to buy a new or used car. In the past, it was common for most buyers to go for 36 to 48-month loans. But in recent years, loans up to 84 months have become more popular.

It’s a great idea to think about how you’ll pay for your new car before heading into the nearest car dealership. Some of the factors that will influence your decision include:

  • Down payment - How much cash do you have available today for the car? The more you pay upfront, the less financing you’ll need, resulting in less interest paid.
  • Overall monthly budget - Carefully assess other monthly costs such as mortgages, insurance, and living costs to see what monthly payments you can realistically afford.
  • Your credit report - This will determine what options are available and the interest you are likely to pay on a loan.
  • Multiple options - Shop around to find the best terms for your current situation. Make sure you understand the interest rates and how much you will actually need to repay.

Longer-term loans are becoming commonplace throughout the US and can be a viable option for many people. Below, we will take a closer look at the pros and cons of a 72-month car loan.

The Pros of 72-Month Car Loans

Opting for a longer-term loan has several main advantages.

Smaller monthly payments

This is the biggest advantage for many people, as buyers can spread the payments out over a longer period. This results in smaller monthly payments, which are ideal if you’re already juggling other substantial debts like a mortgage.

More money on hand

Paying smaller monthly payments means you could set aside more money every month in case unexpected expenses arise. On some loans, you could even use any money you save to pay off the car loan earlier.

A more desirable car

Many people may opt for a less expensive or older model because of financial reasons, which may save money in the short-term, but could end up costing more in repairs. Longer-term financing gives buyers the option to buy a newer car without making a significant dent in their monthly finances.

The Cons of 72-Month Car Loans

Before going ahead with a long-term auto loan, it is important to understand the cons and potential risks.

Higher interest payments

While small monthly repayments make 72-month car loans very attractive, it is essential to remember that it usually equates to more interest paid.

For example, let’s say you take out a $20,000 loan to pay back over 72 months. You use a $1,000 down payment, and the interest rate is 4.9%. You would need to pay a monthly payment of roughly $305.11. This may be a more manageable amount to budget for, but it would involve paying $2,967.92 in interest for the loan.

If you compare that with a 48-month loan at the same rate of interest, you would make monthly payments of $436.70 but would only pay $1,961.60 in interest.

Negative equity

New cars depreciate the moment they leave the dealership. At the start of the loan period, you will owe more money than the car's actual value, creating negative equity.

If you should need to sell the car for any reason, buyers will only pay what the car is worth in real terms, which might be less than what you owe. Likewise, if the car is totaled in an accident, you will only receive the car's current value from your insurance company1. Both situations mean you would be out of pocket, as you still have to pay the loan's balance.

1GAP insurance, available through RRCU, can close the gap between the cash value and your loan balance. 

Resale value

As we mentioned above, many cars depreciate quickly. After the first year, a new car’s value is typically 70-80% of the purchase price. In years two through six, the car can depreciate somewhere between 15% and 18% per year.

It is usually much easier to sell a 5-year-old car because it could qualify as a certified pre-owned (CPO) car, which is much more attractive for both dealers and buyers. Cars older than that are not eligible for CPO, and that means less money for you if you decide to trade it in.

Cost of repairs

New cars come with warranties that typically last for around 5 years, which will cover basic repairs and manufacturer recalls. Once the warranty period expires, you’ll be liable for the total cost of repairs, which can result in expensive bills that need to be paid on top of your monthly payments.

Deciding On An Optimal Loan Term

If you are considering a loan for your next car purchase, take the time to do your homework before you head to the dealership. Finding a reliable and cost-effective auto loan is essential to ensure you get the best out of your investment without putting an unnecessary financial strain on your family.

At RRCU, we offer auto loan interest rates as low as 5.89 % APR* for up to 84 months**. Click below to find out more!

*APR = Annual Percentage Rate. Rate and term based on credit score and year model (auto). Rate subject to change without notice. With Approved Credit. **Terms may be extended on Auto Loans to 84 months at 60 month rate with approved credit and loan amount - Purchase or refinance from other institution only on a 2017 year model or newer - $17,000 minimum.

Check Out Our Auto Loan Rates

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