3 Reasons a 72-Month Auto Loan Is a Bad Decision

A 72-month auto loan can be a trap for the consumer. Many experts agree that entering into these loans is an unwise financial decision. Too often, this decision is made in the high-stress, high-pressure environment of an auto dealership. Purchasing a new car can be an exciting and emotional event. Too many consumers do not carefully weigh all of the important factors they should consider. In this situation, many overlook important reasons a 72-month loan is not a good choice for most consumers. Here are some reasons getting this kind of loan is often a bad decision.

1. 6 YEARS OF PAYMENTS MEANS IT'S JUST TOO MUCH CAR

Many car salespersons speak in terms of monthly payments. The pitch is designed to get the customer to focus on the monthly payments. However, the focus should be on the price of the car. If you have to spread the payments out over 6 years, you may be buying too much car. The cost of a car is not limited to the monthly payments. There is the cost of ownership. If you can barely afford the monthly payments, can you afford the other costs? Expensive cars cost more to operate and repair. Insurance premiums will be higher. The total cost of ownership should be taken into account.

2. OWING MORE THAN WHAT THE CAR IS WORTH

The average person keeps a car for 3 years. Most loans charge most of the interest in the first part of the loan. A car will lose most of its value in the first 3 years. These facts suggest that with a 72-month loan, it's almost certain you will owe more on your car in the first few years than it is worth. You will lose money if you decide to sell or trade your car. Therefore, many people with these types of loans feel as if they are stuck. The cars could be lemons or simply ones they no longer want, but owners are not able to sell without having to pay more from their pockets to pay off the remaining loan amounts. Individuals who encounter financial difficulties and cannot pay their monthly payments will not have enough to pay off the loan balance even after they sell the car. In a worse-case scenario, an individual may be forced to trade or sell the car at a loss to get out of the loan.

3. 6 YEARS' WORTH OF INTEREST PAYMENTS

Most financial experts suggest that consumers should consider the total cost of the loan. Many people negotiate aggressively on the price of a car and fail to consider how much the loan will cost. The interest payments on a 6-year loan can be substantial. The negotiated savings on the car price is easily wiped out by interest payments charged on a long-term loan. The wary consumer should pay attention to the total amount of the loan. Ask to compare interest payments for various terms of loans. This comparison alone is often enough to convince many people that choosing a 72-month loan is a bad decision.