When it comes to car loans, the big question is: how many years should you commit to? According to auto industry experts at Edmunds, a 60-month loan is a solid option – as long as you can handle it. Here’s why:
Lower monthly payments: A 60-month loan means smaller monthly payments, making it more affordable for many people.
Favorable interest rates: Many finance companies offer lower interest rates for 60-month loans, saving you money in the long run.
No negative equity: With a 60-month loan, you’re less likely to end up owing more on the car than it’s worth, giving you more options for selling or trading in the future.
But there are downsides to consider too:
Higher overall cost: The longer the loan, the more interest you’ll pay, making the overall cost higher.
Slower equity build-up: It takes longer to build equity in your car with a longer-term loan.
Invalid warranty: If your car’s warranty only lasts four years, a five-year loan doesn’t make sense.
In short, a 60-month car loan can be a smart choice if you can handle it, with lower payments and better interest rates. But weigh the pros and cons carefully to make sure it’s the right fit for your finances.
The Recommended Length of a Car Loan According to Edmunds
When it comes to getting a car loan, there are many options available to buyers. However, Edmunds, one of the most trusted sources for car buying tips, recommends a 60-month auto loan as the ideal length for most car buyers. This length of time is commonly referred to as a five-year loan, and it is a popular choice due to its balance of affordability and a manageable term period.
Benefits of Opting for a 60-Month Auto Loan
One of the primary benefits of choosing a 60-month car loan is that it allows you to balance out the cost of the car with the term period, making it easier to manage the monthly payment. By spreading out the cost over five years, you can typically afford to buy a higher-end car or a car with more optional features than you would typically be able to afford with a shorter-term loan. Additionally, if you have a good credit score, a 60-month auto loan often comes with lower interest rates, resulting in a lower overall cost of car ownership.
Advantages of a 60-month car loan include:
- Lower monthly payments
- Ability to purchase a nicer vehicle
- Opportunity to build credit by making on-time payments over a longer period
Challenges of Taking a Longer-Term Car Loan
While a 60-month auto loan may seem like the ideal option, there are also some disadvantages that you should be aware of. For one thing, you will be making payments on your car for longer, meaning that the total cost of ownership may be higher than if you opted for a shorter-term loan. Further, the longer-term period can lead to you being “upside-down” on your car loan, meaning that you could owe more than the car is worth if you decide to sell it before the end of the loan period.
Disadvantages of a 60-month car loan include:
- Higher overall cost of ownership
- Upside-down car loan if you decide to sell the car
- Longer-term period where you’re making payments
Why Used Car Loans Often Exceed the 60-Month Term
While a 60-month auto loan is ideal for most car buyers, it’s worth noting that used car loans often have longer terms. This is primarily because the cost of a used car is lower than that of a new car, and as a result, lenders will offer longer payment periods to make the payment on the car more manageable.
Reasons why used car loans typically exceed 60 months include:
- Used cars are typically cheaper than new cars
- Longer payment periods make the monthly payment more affordable
- Credit issues may require a longer-term loan
Factors to Consider When Choosing a Car Loan Term
When considering the term length of your car loan, several factors should be taken into account. These include your financial situation, your credit score, the total cost of ownership, and your plans for the car in the future. By taking all these factors into account, you can determine the optimal loan term for your particular situation.
Factors to consider when choosing a car loan term include:
- Your current financial situation and monthly budget
- Your credit score and the interest rate you can obtain
- The total cost of ownership over the loan term
- Your future plans for the car, such as whether you plan to sell it before the end of the loan term
How to Negotiate Car Loan Terms with Lenders
If you’re in the market for a car loan, it’s worth knowing that you can often negotiate the terms with a lender. By doing your research and being willing to walk away from a bad deal, you can often save thousands of dollars over the life of the loan.
Tips for negotiating with a car lender include:
- Do your research on the car and the loan terms
- Pick the right time to negotiate, such as at the end of the month or during a promotion
- Be willing to walk away from a bad deal
- Shop around at multiple lenders to find the best deal
My Personal Experience with a 60-Month Car Loan
As a car blogger, I have personal experience with a 60-month car loan. When purchasing my last car, I opted for a five-year loan due to the affordability of the monthly payments and the lower interest rate offered by my lender. While I did end up paying more in interest over the life of the loan, I was able to purchase a car with more optional features than I would typically have been able to afford with a shorter-term loan.
Tips for Paying off Car Loans Faster
If you’re like me and want to pay off your car loan as quickly as possible, there are several things you can do to help speed up the process. One option is to make bi-weekly payments instead of monthly payments, as this can reduce the overall interest paid over the life of the loan. Additionally, you can consider making larger-than-required payments or paying off the car loan early if you come into extra cash or have the means to do so.
Tips for paying off a car loan faster include:
- Make bi-weekly payments instead of monthly
- Make larger-than-required payments whenever you can
- Look for opportunities to pay off the loan early, such as through a bonus or lump-sum payment
In conclusion, a 60-month auto loan is typically the recommended length for most car buyers, but it’s important to consider the advantages and disadvantages before making a final decision. By weighing your options and negotiating with lenders, you can get a car loan that fits your budget and helps you achieve your financial goals.