An extended car loan is a car loan that lasts over 60 months, with 72 and 84-month terms growing in popularity.
Extending a car loan is riddled with higher overall costs for a vehicle. However, it does provide some much-needed payment relief for those who really need it. Find out whether it's really worth it.
Down Payment vs. Overall Cost
The dollar amount of a car payment is important when committing to financing a new car. But it can be a huge mistake to focus solely on that number rather than the overall cost.
Many dealerships advertise very low monthly payments so they can sell more cars. What the buyer may not realize is that the low payment is either due to a large down payment or an extended loan.
Down payments are always recommended on a new car purchase, but sometimes it is not possible. No down payment often leaves the buyer with an extended loan as their only way of keeping the payment amount down.
Pros of Extended Car Loans
- Secure a low monthly payment.
Yes, that is pretty much the only benefit of an extended car loan. But the lower payment could be a credit score saver to those in need.
Some people hear over and over how terrible extended car loans can be. Do you know what is even more terrible? Not being able to make your car payments, which can lead to vehicle repossession and a bad credit score.
It is important to buy a vehicle you can afford. But sometimes, what you can afford won't get you from point A to point B. Some experts may say that you cannot afford a vehicle if you require an extended loan to make the payments. There are certainly risks for borrowers considering an extended loan, but there are worse things you could do financially than decide on an extended loan.
Know the risks and make an informed decision about whether or not it is right for you and your family.
Cons of Extended Car Loans
- They almost always come with higher interest rates.
- You will owe more than what the car is worth for a long period of time.
- You may need to buy gap insurance to cover the difference between what the car is worth and what you owe.
All of the problems with extended car loans add up to paying more overall for a new car purchase. Nobody wants to pay more, and with all of these factors, it could mean hundreds—if not thousands—of dollars more.
If you cannot pay for a car in 60 months or less, the car is probably out of your price range. Proceed with caution, and try to pay more on your monthly payment to pull yourself out from underneath the loan.