Are you considering a 72-month car loan? Think again. It’s generally a bad idea, and here’s why:
In summary, avoid a 72-month car loan if possible. It may seem like a manageable option, but it can put you in a difficult financial situation. Opt for a shorter-term loan instead.
My experience with 72-month car loans
I have purchased cars several times in my life, and I have made the mistake of signing up for a 72-month car loan in the past. It was a decision that I regretted soon after, and I would never recommend anyone to go down that path. Purchasing a car is a big decision, and adding a long-term loan will only complicate your life in the long run.
What is a 72-month car loan?
A 72-month car loan, also known as a 6-year loan, is a type of car loan where the borrower agrees to pay back the loan over six years. It is considered a long-term loan because it takes a prolonged period to repay the full amount of the loan. The reason some people opt for these loans is because the monthly payments are lower than that of shorter-term loans, which may make purchasing a car more accessible to some people.
Why a 72-month car loan is not a good idea
A 72-month car loan may seem like a good idea in the short-term because of the lower monthly payments. However, it is not a wise decision in the long run. There are several reasons why taking out such a loan could be a financial mistake.
Firstly, you are likely to owe more money than the car is worth for the majority of the loan period. This means that if you want to sell the car or trade it in for a new one, you will not have enough equity to cover the remaining loan balance. This is known as being “upside-down” on the loan, and it can put you in a financial bind.
Secondly, taking out such a long-term loan means that you will be paying interest for an extended period of time. This will add up over time and increase the overall cost of borrowing. You will end up paying much more than the actual price of the car if you take out such a loan.
Lastly, when you extend the life of the loan, you are likely to experience more maintenance and repair issues with the car down the line. This means that you may end up having to pay for the repairs of a car that is no longer worth the loan amount you owe.
Avoiding the pitfalls of a 72-month car loan
If you have already taken out a 72-month car loan, it is not too late to avoid the pitfalls. The first step is to evaluate your finances and try to make extra payments on the loan to pay it off faster. This will help you to avoid being “upside-down” on the loan, and it will save you money in the long run.
Another option is to refinance the loan at a lower interest rate. This will help you to reduce the overall cost of borrowing and could help you to pay off the loan faster.
Alternatives to a 72-month car loan
There are alternative options to a 72-month car loan that you can consider. Some of these include:
-Getting a shorter-term loan: Although the monthly payments will be higher, you will save money on interest, and you will own the car outright faster.
-Leasing a car: This is an option that makes sense if you are looking for a short-term car solution. Leasing allows you to drive a new car for a set period (usually 2-4 years) and then return it at the end of the lease term.
-Buying a used car: This is an option that could help you save money on the purchase price of the car. However, you should be careful as a used car can come with its set of maintenance and repair issues.
Tips for financing a car purchase without a 72-month loan
If you are considering buying a car without taking out a 72-month loan, some tips to keep in mind include:
-Work on improving your credit score before financing a car purchase.
-Pre-qualify for a loan before shopping for a car.
-Consider your budget carefully before making a purchase.
-Consider buying a car outright if you have the funds.
-Shop around for the best interest rates and negotiate terms with the dealer.
In conclusion, a 72-month car loan is not a good idea for several reasons. However, if you have already taken out such a loan, there are ways to avoid the pitfalls and save yourself some money in the long run. Regardless of the option you choose, always remember that purchasing a car is a big decision that should be made with careful consideration of your finances.