5-Year vs. 7-Year Auto Loan with a 7% Interest Rate Five-year loan Seven-year loan Monthly payment $891.05 $679.17 Interest paid $8,463.24 $12,050.33 Total cost $58,463.24 $62,050.33
As you can see, opting for the seven-year loan saves you roughly $212 per month but also increases the cost of the car by nearly $3,600.
Interest rates on car loans are often partly determined by credit scores, so borrowers with poor or limited borrowing histories may face even higher costs. Longer auto loans also increase the likelihood of owing more than the car is worth. Being “underwater” can trap buyers in debt, make it difficult to sell or trade in a vehicle without paying out of pocket, and lead to losses if the car is totaled or stolen.
What Car Buyers Should Consider Before Taking a Longer Loan
Longer loans increase the total price of a car and the risk of it one day being worth less than you still owe. These situations can drag down your finances.
Before committing, it’s worth calculating how much more the car would cost overall by stretching the loan term, considering how long you plan to keep it, and asking whether you could still handle the payment if your financial situation changed. With longer loans, the monthly bill is lower, but the obligation lasts longer.
If the only way to afford the car or to qualify for financing is to stretch the loan term, that might be a sign it’s out of your budget. If you can’t keep the payments within five years, you may want to consider buying a less expensive model, opting for a used car, or saving to make a larger down payment and reduce the amount you borrow.
Longer loans can make buying a fancier car viable and immediately affordable, but they come at the expense of higher total costs and less flexibility later. For many buyers, the safer move isn’t stretching the loan but lowering budgets or footing more of the cost up front.
Car Buyers Are Stretching Auto Loans Longer-And That Can Cost More Than It Seems
