72-Month Car Loan: What to Know About Long-Term Loans
Signing up for a longer loan term might help you balance your budget more easily over time, but it may not be for everyone.
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Purchasing a car with a long-term car loan has become more common in recent years, but that doesn't mean it's the right move for everyone. Long-term car loans are, in many ways, a response to rising vehicle prices as well as cars becoming more reliable and lasting longer.
You'll have to take your individual needs and preferences into account when weighing whether a 72-month car loan suits your situation. There are a few things to consider.
Advantages of a 72-Month Loan
These car loans allow you to spread out the payment for a car over 72 months, resulting in a lower car payment each month than if you chose a shorter loan. Because 72-month car loans are common, you could have a high chance of finding a good interest rate since you'll have options for comparing different quotes. If you're considering 84-month car loans as well, remember that the longer a loan's term, the higher the risk for the lender, so you may find it easier to qualify for a 72-month car loan than for an 84-month car loan.
In some cases, a 72-month loan is the best way to get a new car or a higher-priced used car without a high car payment each month. A good example would be a large family who budgets carefully. To transport everyone at once, they may be shopping for a large SUV or a van, and they may value reliability and a newer vehicle so they won't have to worry about repairs. A 72-month car loan could allow them to comfortably afford ownership while still shopping at a higher price point.
Even if a 60-month car loan is technically within your current budget, opting for a 72-month car loan can leave some wiggle room in your budget for savings and other priorities that can come up during the life of a loan.
Potential Disadvantages of a 72-Month Loan
Perhaps the most significant disadvantage of a 72-month loan is that buyers will be paying significantly more in interest over the life of the loan, especially when compared with a 36- or 48-month loan. As an example, on a $25,000 auto loan with a 4.5% interest rate, a borrower would pay $1,772.23 over the course of a 36-month loan, with a monthly payment of $743.67. Keeping the same interest rate, but increasing the term to 48 months drops the payment to $570.09, but increases interest paid over the life of the loan to $2,364.18. When you stretch that term out to 72 months the payment is $396.85, but interest paid over the loan term is $3,573.25, more than twice the amount of the 36-month term. A borrower buying a $25,000 car would end up paying $28,573.25 with a 72-month loan if they complete all of the payments and pay off the car—as opposed to selling it before the loan is paid off.
In some situations, a 72-month car loan may be a risky option because your car gets older and your life can change significantly in six years. Every year, the possibility of a high car repair bill goes up and more maintenance needs can emerge as you drive. With the average person traveling nearly 10,000 miles a year in a vehicle in 2021, and many cars having multiple drivers, it's easy to see how a car would be nearing some repair milestones after six years.
People with 72-month car loans can sometimes run into problems because they budgeted to pay their car payment, but not repairs on top of that payment. Also, if you expect your income to increase and your expenses to remain steady for the life of the loan, new expenses or a job loss could make it harder to make your ongoing car payments.
72-month car loans are also riskier if you expect to purchase a different car before the six years are up. Depending on your car's condition and the demand for your car's make and model, you could sell this car during the loan for less than the outstanding balance, a situation known as negative equity. For instance, if you have your sporty two-seater for four years but realize you're going to have twins soon, you may only be able to sell your car for less than the rest of your car loan balance. You'll also need to pay that balance or roll it into a new car loan in order to move forward.
Top Considerations When Assessing a Long-Term Loan
If you're considering 60- and 84-month loans in addition to 72-month loans, you know the general principle is that you'll pay less overall with a shorter loan, but you'll pay less monthly with a longer loan. A 72-month car loan might be right for your individual situation, but keep the following considerations in mind as you decide which fits you best.
You might choose a longer loan if:
- Your household needs a higher-priced car, such as a vehicle that can transport your whole family
- You're open to saving carefully to pay off your loan early or to pay for future repairs or maintenance
- You have evidence that your new car has a track record of being fun and reliable to drive, even many years after purchase. Long-term loans can experience negative equity, where you owe more than the value. However, negative equity doesn't impact you as much if you'll keep the car after the loan term elapses
A shorter loan may work better if:
- You know you likely won't be able to save up for repairs and maintenance, which could become expensive after warranties expire
- You're aware of cars that fit your needs and have lower sticker prices. You can get the same low car payments by choosing a lower sticker price. In many cases, this lower payment also includes less interest overall
- You may need to trade in or sell your car within the loan term, which could result in still owing money on a car after you're done with it
The Bottom Line
It's important to strike the optimal balance between the risks of a long-term loan, the rewards of driving the car you want, and the impacts on your overall financial picture. No matter which car loan you choose, you'll likely be better prepared for the road ahead if you know the advantages and disadvantages to prepare accordingly.