Is a 72-month car loan bad? (2024)

Is a 72-month car loan bad?

Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.

What is the disadvantage of a longer 60 or 72 month auto loan?

Lenders usually charge higher interest rates for long-term auto loans. Because there's more time for a borrower to default on the loan, lenders consider longer-term loans to be a higher risk. To compensate for that risk, they often charge a higher interest rate when you stretch out the loan term.

How long does it take to pay off a 72 month car loan?

If you're one of them, you may have a loan that will take you 60 or 72 months to pay off. That's five to six years! That's too much interest to have to pay. So we want to help you get out from under that loan faster and save money on interest by giving you 6 ways to pay off your car loan early.

What is a disadvantage of paying for a car with a long-term loan?

Higher interest

Even when the interest rate on a long-term loan is the same as a shorter term, you will still pay more in interest over the life of the loan. That's because you will make interest payments for far longer.

How many year car loan is best?

However, if the burden of monthly EMI that short-term loans get problematic, choosing a long-term, anytime within 7 years would be wise. The monthly pay out would be reduced compared to short-term loans.

Why is a major downside of a 72 month loan?

Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan.

Can you pay off a 72 month car loan early?

There are no legal restrictions to paying off your auto loan early but it may come with fees from your auto loan provider. Paying off a car loan early can be a good option to save money and reduce your debt, but whether it is a good idea depends on your unique financial situation.

What happens if I pay an extra $100 a month on my car loan?

Your car payment won't go down if you pay extra, but you'll pay the loan off faster. Paying extra can also save you money on interest depending on how soon you pay the loan off and how high your interest rate is.

How to pay off a 5 year car loan in 2 years?

What is the rule of 72 on a car loan?

Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double. So, 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double.

Why should you not finance a car for more than 4 years?

But in the long run, those lower monthly payments come at a steep cost. At best, a long-term auto loan means paying thousands of dollars more in interest over the loan term. At worst, it means owing more than your car is worth, which could put you in a precarious financial position.

Is it worth it to pro long auto loan and pay more than the principal?

By paying extra toward your principal and shortening the length of time it takes to repay the loan, you pay less interest over the life of the loan. Most auto loans have simple interest and are amortized, meaning more interest is paid off during the beginning of your loan term than at the end.

Is it better to have a short or long car loan?

Key takeaways

A shorter loan term is better, as it helps minimize borrowing costs and the risk of being upside-down on your loan.

What is a good interest rate for a car for 72 months?

An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.

How much is too much for a car payment?

According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%. You can use a car loan calculator to calculate a monthly payment within your budget.

What is the average car payment?

Car payment statistics

The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.

How long should you pay off a car?

But the reality is, given how expensive new and used cars are today, this rule is not only ignored but also outdated. This is why Edmunds recommends a 60-month auto loan if you can manage it. A longer loan may have a more palatable monthly payment, but it comes with a number of drawbacks, as we'll discuss later.

What are the disadvantages of a large down payment on a car?

Disadvantages of a Larger Down Payment

The two biggest cons of making a down payment that's around 50 percent are: More money down doesn't lower your interest rate – Bad credit car buyers get higher than average interest rates, and it's extremely rare that a larger down payment can lower it.

What decreases on a loan every month?

Typically, the majority of each payment at the beginning of the loan term pays for interest and a smaller amount pays down the principal balance. Assuming regular payments, more of each following payment pays down your principal. This reduction of debt over time is amortization.

How to pay off a 6 year car loan in 2 years?

One of the best ways to pay off a car loan faster is to make biweekly payments instead of monthly payments. To do so, split your current payment amount in two, and pay that amount every two weeks.

What happens if I pay my car payment twice a month?

Paying half of your monthly car payment twice a month instead of a full payment each month can help you pay off your car loan early. That's because when you make payments on a biweekly basis, you make 26 payments that add up to 13 monthly payments instead of 12.

Is it smarter to pay off a car loan early?

You'll pay less interest by paying off your loan early since the lender will have less time to collect interest from you. But even an extra payment here and there can make a difference. That extra amount should go directly toward the principal, especially if you specify that intention when you make your payment.

What happens if I make 2 extra car payments a year?

If you have a 60-month, 72-month or even 84-month auto loan, you'll pay quite a bit in interest over the loan term. As long as your loan doesn't have precomputed interest, paying extra can help reduce the total amount of interest you'll pay. You'll pay off your loan faster.

Do extra payments automatically go to principal?

Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.

Does paying off a car loan early hurt credit?

Paying off a car loan early can cause a slight dip in your credit scores, depending on your credit profile. Any dip is likely to be temporary as long as you're practicing responsible credit habits with other accounts.