What's the Longest You Can Finance a Car?

Long car loans lower payments, but have drawbacks.

Long car loans lower payments, but have drawbacks.

As of the end of 2012, the length of the average car loan was 5 1/2 years, but some lenders are willing to go longer. If you really want to stretch out your payments, 72- and 84-month loans are readily available. Some car borrowers have even taken out 97-month loans. While you can take out a very long car loan, the real question is if you should.

Diminishing Returns

The longer your car loan gets, the less it saves you. Consider a $24,000 car bought on a promotional 0 percent loan. With a 12-month loan, your payments would be $2,000 per month. 24-month loans cut the payment in half, 36-month loans reduce payments by one-third, and every additional year has less effect. Finally, going from a seven-year loan to an eight-year loan would only cut your payment from $285.71 to $250.

Longer Loan Interest

Lenders don't care for long loans since it gives you more chances not to pay them back. It also increases the chance the car will need expensive repairs before it's all yours. According to research from automotive publisher Edmunds, the average interest rate for a five year car loan was 2.69 percent in 2013. A seven year rate was 4.9 percent. While a five-year $24,000 loan payment works out to $427.95, the high interest rate takes a longer loan payment down to only $385.41. Over the life of the loan, you'll pay an extra $2,072 in interest.

The Gap

If you don't put a sizable amount of money down, a long loan could leave you owing more on it than the car is worth. This might not matter if you keep it throughout the loan, but it could limit your ability to sell it later. Your insurance might also not cover the gap. If you're in an accident or the car gets stolen, you could also end up owing the balance.

Benefits

According to the "Wall Street Journal," the average car on the road in 2013 is 11 years old. That means making up to eight years of payments will still leave your car with some life after you've paid it off. Plus, saving money on your monthly payment can free up funds for other things. You can mitigate the risk of owing too much on your car with a gap insurance policy that covers the difference between what you owe and what your main insurance pays.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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