Should I Consider a 72-Month Car Loan?

Car financing involves evaluating factors that shape a vehicle’s affordability. Longer loan terms, such as 72-month options, are a prevalent choice, offering seemingly manageable monthly payments. Understanding these financing structures and their long-term implications is crucial.

Understanding the 72-Month Car Loan

A 72-month car loan is a financing agreement where the vehicle’s cost is repaid over six years. This extended duration contrasts with more traditional loan terms, such as 48 or 60 months. Its primary appeal is significantly reducing the monthly payment by spreading the loan balance over a longer period.

Comparing a 72-month loan to shorter terms reveals distinct financial differences. A 60-month loan typically carries a lower interest rate than a 72-month loan because lenders perceive less risk. While the monthly payment for a 72-month loan is lower, the total interest paid generally increases. The average annual percentage rate (APR) for new car loans in early 2025 was around 7.1%, with average terms extending to about 69.1 months.

Key Financial Considerations

Opting for a 72-month car loan introduces several financial realities. A longer repayment period leads to a substantial increase in the total interest paid. Extending a loan from 60 to 72 months, even with a slightly higher interest rate, can add thousands of dollars to the overall cost, making the vehicle more expensive than its initial purchase price.

Vehicle depreciation poses another financial challenge with longer loan terms. New vehicles depreciate by about 20-30% in the first year and an additional 15-18% annually thereafter. This rapid loss can lead to negative equity, where the outstanding loan balance exceeds the car’s current market value. Being “upside down” creates difficulties if selling, trading, or totaling the vehicle, as the borrower pays the difference between the insurance payout and the remaining loan balance.

An extended debt period ties up financial resources for a prolonged time. This commitment limits financial flexibility, impacting the ability to save for goals like a home down payment or retirement. It also affects the capacity to take on new debt, as a long-term car loan occupies a consistent portion of monthly income. As a vehicle ages while still being financed, maintenance and repair costs increase. AAA estimates average car maintenance costs at $1,475 per year, adding to the financial burden, especially if warranties expire before loan repayment.

Factors Guiding Your Decision

Deciding on a 72-month car loan requires a thorough personal financial assessment beyond just the monthly payment. Evaluate the total cost of the loan in relation to your overall financial health and future aspirations. Understanding the full interest burden and potential for negative equity is crucial.

The anticipated lifespan and reliability of the vehicle should also influence the decision. If the loan term extends close to or beyond the vehicle’s expected useful life, you might face substantial repair costs while still making loan payments, leading to an ongoing financial drain.

Your credit score plays a significant role in determining the interest rate offered for any car loan. Higher scores (above 780) typically secure lower rates, while lower scores may face much higher rates, sometimes exceeding 15% to 20%. A higher interest rate on a long-term loan further exacerbates the total cost and the risk of negative equity. Consider how a long-term car loan might impact other financial goals, such as building an emergency fund or investing.

Strategies for Car Financing

Several strategic approaches can help individuals navigate car financing, particularly when considering longer terms. Making a substantial down payment is a highly effective strategy. A larger down payment reduces the principal loan amount, which lowers monthly payments and significantly decreases the total interest paid. It also helps establish equity in the vehicle from the outset, reducing the risk of negative equity due to rapid depreciation.

Shopping for interest rates from multiple lenders provides an opportunity to secure the most favorable terms. Compare offers from banks, credit unions, and dealership financing departments. Pre-qualifying for a loan can provide an estimated rate without impacting a credit score, allowing for comparison shopping before committing to a purchase.

Choosing a less expensive vehicle or a reliable used car can reduce the necessity for a long loan term. Used cars have already undergone their most significant depreciation, making them a more cost-effective option. This approach can lead to a smaller loan amount and a shorter, more manageable repayment period.

For those already in a 72-month loan, options exist to improve their financial standing. Making extra payments whenever possible, such as rounding up monthly payments or applying tax refunds, can shorten the loan term and reduce the total interest paid. Exploring refinancing opportunities can also be beneficial, especially if interest rates have dropped or your credit score has improved. Refinancing involves obtaining a new loan to pay off the existing one, potentially at a lower rate or for a more suitable term.