Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.

Key takeaways

  • Longer-term car loans may seem attractive due to lower monthly payments, but they can lead to financial risks, such as being upside down on the loan and paying more in interest.
  • Alternatives to long-term car loans include leasing a vehicle, getting a co-signer, or making a larger down payment.
  • It is important to carefully consider the downsides of a long-term car loan before making a decision.

Your loan term is the amount of time it takes for you to repay the loan. The longer your loan term — typically ranging from 24 to 84 months, or up to 96 months with some lenders, like Autopay — the cheaper your monthly payments will be. But a lower monthly payment has drawbacks. They can cost you more over the long term. For most drivers, a long-term car loan is not a good idea.

Reasons to avoid a long-term car loan

Longer-term car loans are attractive because the monthly payments will be smaller than those with a shorter-term car loan. Though they allow you to buy a more expensive car while still making the payment affordable, long-term car loans can place you in a worse spot financially if you’re not careful.

Vehicle depreciation

Due to vehicles’ fast depreciation, a long-term car loan amplifies the chance that you’ll end up owing more than your car’s value, meaning you have negative equity. That’s called being upside down on the loan.

For instance, if your car’s value is $12,000 but your outstanding loan amount is $15,000, you’re $3,000 underwater.

Being upside-down can complicate the process of selling the car or dealing with an accident. If you trade in your car when you’re upside-down, you likely won’t receive enough to cover what you owe. You could roll the outstanding balance into your next loan, but that’s often a bad move — it means paying interest on both loans.

You’ll have a similar problem if your car is totaled. Your insurer will pay out based on your car’s value, not your outstanding loan balance.

Higher interest

Longer term lengths typically come with higher auto loan interest rates. This is generally because longer loans are riskier for lenders. With a protracted loan term, there’s a greater chance something might hurt your finances and lead you to default before the loan is fully repaid.

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.

Consider how your interest will accrue over the lifetime of a loan for $26,000. We based the annual percentage rates (APRs) on average rates cited in the latest Experian State of the Automotive Finance Market report.

APR Loan term Monthly payment Total interest
4 percent 48 months $332 $937
6 percent 60 months $290 $2,400
9 percent 84 months $241 $5,272

Although your wallet might appreciate the decreased monthly payment, the trade-off may not be worth it.

This is especially important when rates are high, as they are now.

The Federal Reserve has raised the federal funds rate over the last year. It remains at its highest level in 22 years. When the Fed raises benchmark rates, it drives up interest rates private lenders offer for personal loans and auto loans. The average new loan rate for the end of 2023 was 7.03 percent, according to Experian. However, rates ranged from 5.61 percent for those with the highest credit scores to 14.17 percent for borrowers with the lowest or deep subprime scores.

Stuck with the same vehicle

Before signing off on a car loan that’s as long as 84 months, make sure you’ve found the right car for your needs and consider whether you will want to drive that same vehicle throughout the entire term. And the older your car gets, the more likely it is to need expensive repairs.

Seven years is a very long time. Your needs and circumstances could shift. But, with a long-term loan, you will be stuck with the same vehicle. And in most cases, rolling over the loan will cost you money.

Alternatives to a long-term car loan

There are other options to get a vehicle without agreeing to the risk of a long-term car loan.

Lease a vehicle

If you are struggling to get approved for a favorable loan, you may consider leasing a vehicle. Leasing rather than buying a car can provide more affordable monthly payments. Even drivers with fair credit are more likely to receive approval for a lease, and you can still get behind the wheel of a fairly new vehicle.

Leasing’s downsides are important to keep in mind:

  • Restrictions on how many miles you can drive the vehicle during the lease term.
  • Fees for excessive wear and tear.
  • The need to either buy out the lease or return the car at the lease’s end.

Get a co-signer

A co-signer with good credit helps assure potential lenders that you will pay off your loan. This makes you more likely to receive approval, even if your own credit is imperfect.

Make a high down payment

If your goal is to lower your monthly costs, making a high down payment is a great option. The larger the amount you put down initially, the lower your monthly payment will be. You are also likely to receive more favorable rates from your lender.

Is a long-term car loan worth the risk?

A long-term car loan is often not a good idea because of the added financial risk. While the lower monthly payment on a long-term car loan may be appealing, it is better to save up some additional cash first. This way you can make a larger down payment. Or you can simply select a less expensive car.

For some though, a long-term loan might be the only way to afford a car. If this is your situation and you have a low credit score, compare multiple lenders to find the best car loan rates for bad credit.