Pros and Cons of Extending Auto Loan Terms

According to recent MotorVero data, more than 80% of new car buyers rely on financing to purchase their vehicles. For many shoppers, securing an affordable monthly payment is a top priority. In a recent survey conducted by MotorVero, 71% of respondents cited manageable payments as the most critical factor in their car-buying decisions.

Why Longer Loan Terms Are Becoming Popular

--TOP ADVERTISEMENT HERE--

With the average price of new vehicles nearing $40,000, it’s no surprise that extended loan terms are gaining traction. Loans exceeding 73 months now account for 30% of new vehicle financing. Since February 2020, the number of 84-month loans has increased by 13% year-over-year.

MotorVero aims to empower car buyers by helping them understand the implications of extending loan terms.

Benefits of Extended Loan Terms

--SECOND CAR LIST HERE--

1. Lower Monthly Payments

One of the most compelling reasons to extend a loan term is to reduce monthly payments. For example, a $38,000 loan at a 5% interest rate would have the following payment structures:

• 48 months: $876
• 60 months: $718
• 72 months: $612
• 84 months: $538

The difference between a 60-month term and an 84-month term can save $180 monthly, providing much-needed financial flexibility for some buyers.

--FIRST CONTENT ADVERTISEMENT HERE--

2. Attractive Financing Deals

Automakers often offer low or even 0% APR financing promotions, especially for buyers with excellent credit. Extended terms can make these deals even more appealing by spreading payments over a longer period.

3. Alternative to Leasing

For those who drive extensively or need to modify their vehicles, leasing may not be the best fit. Extended loan terms offer a viable alternative, allowing buyers to own their vehicles outright while keeping payments manageable.

--THIRD CAR LIST HERE--

Drawbacks of Extended Loan Terms

1. Prolonged Payment Periods

Longer loan terms mean more years of payments. For instance, an 84-month loan commits you to seven years of payments, potentially leaving you paying for a vehicle long after its initial appeal or functionality has waned.

2. Higher Interest Costs

Extended terms often result in higher overall interest payments. For a $38,000 loan at 5% APR, the total interest by term length is as follows:

--SECOND CONTENT ADVERTISEMENT HERE--

• 60 months: $5,026
• 72 months: $6,063
• 84 months: $7,115

The additional $2,089 paid over 84 months compared to 60 months is a significant consideration.

3. Risk of Being Underwater

Vehicles depreciate rapidly, and extended loans increase the likelihood of owing more than your car’s worth. Shorter terms help buyers build equity faster, reducing this risk.

--FORTH CAR LIST HERE--

4. Increased Maintenance Costs

As vehicles age, they typically require more maintenance. With a 6- or 7-year loan, you may face repair bills while still making monthly payments, straining your budget further.

Smart Alternatives to Long-Term Loans

• Consider used vehicles: Opt for a pre-owned car or a lower trim level to fit your budget without extending loan terms.

--THIRD CONTENT ADVERTISEMENT HERE--

• Explore leasing: Leasing can provide lower payments with fewer long-term commitments, ideal for those with good credit.
• Shop for deals: Compare vehicles within the same category to find models with better pricing or incentives.

Before committing to a purchase, ensure your financial situation aligns with your vehicle choice. MotorVero provides tools to help buyers compare financing options and make informed decisions.

--FIFTH CAR LIST HERE--

Final Thoughts

Extending auto loan terms can offer immediate relief through lower monthly payments, but it comes with long-term financial implications. By understanding the pros and cons, you can make a decision that aligns with your needs and budget.

--BOTTOM ADVERTISEMENT HERE--

MotorVero is here to guide you every step of the way, ensuring transparency and financial clarity in your car-buying journey.