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Should you get a 7-year car loan?

A growing number of car loans will take nearly two presidential terms to pay off.

By MSN Money Partner Sep 5, 2012 6:12PM

This post comes from AnnaMaria Andriotis at partner site MarketWatch.


MarketWatch on MSN MoneyThe typical duration of a new-car loan rose slightly, to 64 months, in the second quarter of 2012, according to data released Tuesday by Experian. That's up slightly from a year ago and the highest since 2008. But in many cases, borrowers are signing up for even longer loans. 


The biggest area of growth in auto loans is among those with repayment periods of 73 to 84 months, which accounted for nearly 16% of all new-car financing in the second quarter. At seven years, these loans last nearly as long as the average marriage ending in divorce, according to the U.S. Census.  (Post continues below.)

But is signing up for these extended repayment periods worth it for borrowers?


Image: Car on stack of money (© Dynamic Graphics/Jupiterimages)That depends, experts say. Traditionally, such long-term loans have cost 1 to 2 percentage points more than the shorter-term options. However, a growing number of car manufacturers have recently started offering lower rates, says Alec Gutierrez, senior market analyst of automotive insights at Kelley Blue Book. In some cases, rates of 0% to 2% are available on loans of up to six years, he says. Before the recession, it was rare to find six-year car loans with rates under 5%, he says.


These loans are also now easier to come by, says Keith Leggett, a vice president and senior economist at the American Bankers Association.


During the credit crunch, many lenders pulled back on offering loans that ran longer than five years, but as restrictions eased in this sector, the extended repayment has been brought back, says Melinda Zabritski, director of automotive credit at Experian.


But just because seven-year car loans are available doesn't mean borrowers should  sign up for them, experts say. For borrowers, the main appeal of longer repayment periods is that they offer lower monthly payments. But these loans also come with risks, including thousands more in interest over the life of the loan -- even at low interest rates.

For instance, a borrower who signs up for a four-year car loan of $25,714 at 4.63% (the average rate and amount financed on new cars) would pay about $2,500 in interest over the life of the loan. But a borrower who finances this amount at the same rate over a seven-year period would pay about $4,440 in interest.


In addition, borrowers should consider how long they'll keep the car. Those who plan to sell in three or four years but sign up for a loan that runs a longer period could end up owing more on the car than it's worth when they try to unload it.


More on SmartMoney and MSN Money:

Sep 5, 2012 9:48PM
To purchase a car, smart people make a monthly car payment to themselves. Lets say a monthly car payment costs $700.00 per month. You take out $700. from your pay- check and place it in a separate savings or bond account ( you can ladder bonds to come up with more money sooner). When you have enough money you go to the car dealer and pay cash. As the article above suggests you could end up paying $2,500 to $4,440 in interest - why not pocket that money for yourself?
Sep 6, 2012 9:25AM

I couldn't even read the article after reading the title.

All I can say is if you are crazy enough to finance a car for 7+ years.. well you know the saying.."You just can't fix stupid!"

Financing a car for any length of time is not that intelligent to begin with. Save your money, purchase a beater and keep saving for a better car. Trade up and always purchase with cash. You may make a few mistakes along the way while learning what to look for in a used car, however they will far out way the mistake of finance charges, new car depreciation, and high monthly payments

Sep 7, 2012 5:26AM
Brazil 123:  I agree with your comment 100%.  However, pretty much any 7 year car loan will incur far more than $2500 to $4440 in interest.  
I agree with you on the savings comment as well.  
Folks:  Buy a used car with low miles.  Pay cash and do not get car payments.  Car payments are the surest road to poverty.  When you have a car payment, you look at a car in terms of "cost per month" and are always trying to rationalize the cost.  If you do have car payments, treat your car well, and drive it until it is paid off, then KEEP THE CAR.  Do not trade it in or sell it.  There is nothing wrong with driving a car that is paid off.  Also, the feeling of freedom from car payments is very satisfying.  The best thing you can EVER say to your bank or credit union (preferably credit union, as they are cheaper and better than banks) is "please send me the title, as I am sending in my final payment"!  Try it some time.  
Nov 5, 2012 5:39PM

I have six rules when thinking about buying a new car:

1. don't buy one unless you have done your homework, (IE) private  financing, cost and type of vehicle and best pricing not pegged at what a car sticker indicates. That's what they hope to get and its always about twenty percent higher than a car is worth.

2. wait until the end of the year, then get a leased turnin  with low miles at about half price of what it sold for new that same year.

3. Borrow money from a bank if you have too. Dealers tack about 2% on a new car just for handiling the credit.

4. When car is paid for, continue to pay into a special account and drive the car for at least 150,000 miles. Don't trade it in as you will be giving the dealer a big bonus just  for trading.sell it private sale or give it to someone because that is what you do when you trade it in to a fast talking car salesman.

5. Put the money you have been paying each month into your 401K retirement account. It'll go a lot better when it's added to your regular retirement.

I've added 6000.00 every year since purchasing a ford cr. vic.  in 2003 

I still plan on driving 10,000 miles a year and its good for at least 200,000. If i keep it up, i should get at least 400,000.

6. Don't let a salesman try and sell you one you don;t need or can't afford just to make a nice commission.

good luck. Remember when you are in a dealers office, you are at their mercy.

Sep 6, 2012 6:49PM
Cars are lasting longer and are in better shape after more years than they used to. Also, some of the warranties are really good so why not keep the car a long time? I recently bought a Hyundai Genesis Coupe 3.8 Track and the dealer doubled the power train warranty so it's 20 years/200,000 miles. Even with the factory warranty of 10 years/100,000 miles it still isn't so crazy to finance for a longer period.

One more thing...the way the Fed is creating money out of thin air I'm betting some pretty high inflation is on the way. If my wages even come close to keeping the pace with inflation then my car note is going to seem like nothing in a few years....

Sep 7, 2012 5:17AM
The title of this article is "Should you get a 7-year car loan?"

The answer is NO.

Get a car more within your budget, and stop living beyond your means.
Buy used cars with low mileage.  Pay cash and drive the car carefully.
It will last a long time and be worth it.  Only a fool would get a 7 year car loan.  Ask yourself this:
Is there any way in the world you would want a 7 year old car WITH PAYMENTS?  No, there is not, so be a little more real with your purchases.  
Sep 7, 2012 8:42AM
The newer the car the more the insurance, if you owe full coveragerage is required and cost alot more so if you have a older car keep it replace motor  keep taxes down and a 500.00 paint job or new motor is a one time payment ! Not a 7 year monthly payment especially with the un certain economy.
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Sep 6, 2012 10:46AM

If you get a new car every three years and don't mind a payment, leasing is the way to go. More car for the money


At least that's the way I see it!!


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