Long term car loans aren't worth it — here's why

Even though it might be tempting to take out a long term auto loan in order to get your dream car, it’s probably not worth it, according to one report.

Car loans for longer than 60 months -- or five years -- have higher interest rates, according to a recent report from NerdWallet.

Despite the higher interest rates, 38 percent of new car buyers in the first three months of 2019 took out car loans between 61 and 72 months and 32 percent took out loans for between 73 and 84 months, which ends up being between six and seven years, NerdWallet reported, citing data from Experian.

Meanwhile, 42.1 percent of used car buyers took loans between 61 and 72 months and 20 percent took loans between 73 and 84 months.

AuthorityAuto.com President Oren Weintraub told NerdWallet that when car dealers offer these long term auto loans, they don’t let the buyer know about the change in interest rates.

“To close the deal, [car dealers] need to offer a payment that is comfortable,” Weintraub said. “Instead of reducing the sale price of the car, they extend the loan.”

So even though the monthly payment may look smaller, the overall cost is going to be much more, the website said.


Other than the increased interest, here are four reasons why you should say no to a long term car loan, according to NerdWallet.

1. You immediately owe more money than the car is worth.

According to NerdWallet, that’s called being “underwater” or upside down. For this reason, car buyers should go for the shortest car loan they can pay for.

“The shorter the loan length, the quicker the equity buildup in your car,” Jesse Toprak, CEO of CarHub.com told the website.

2. You’re setting yourself up for a negative equity cycle.

If you have to trade in your car before the long term loan is paid off, you could still owe money, which could end up being added into your next loan -- which will increase your debt every time it happens.

3. After 60 months, interest rates tend to jump.

Edmunds analyst Jeremy Acevedo told NerdWallet that people who stretch their loans longer than 60 months end up paying higher interest. That shows they are either buying a more expensive car or are paying more for the same car, NerdWallet reported.

4. If you have a long term car loan on a used car, you’re going to be paying more for repairs, too.

An older car will have more miles on it and will need plenty of maintenance and potentially unexpected repairs. That means you could be spending a lot more on your car than just the payments.


According to NerdWallet, there are four things you can do to fix some of the issues you might have with long term loans.

The website recommends using low APR loans, refinancing your bad loan, making a larger down payment or leasing the car instead of buying it.