A 72-month auto loan can make an expensive vehicle look easier to afford because the payment is spread over an additional year. But a smaller monthly payment does not mean the loan costs less.
Why longer loans usually cost more
The Consumer Financial Protection Bureau advises borrowers to compare the APR, amount financed, loan term, monthly payment and total interest rather than focusing only on the monthly payment.
CFPB $20,000 example
The CFPB provides an example using a $20,000 loan at a 4.75% interest rate.
| Loan Term | Monthly Payment | Total Interest |
|---|---|---|
| 60 months | $375 | $2,508 |
| 72 months | $320 | $3,024 |
The 72-month example reduces the payment by $55 per month, but total interest increases by $516.
Negative equity risk
A vehicle loses value while you repay the loan. Extending repayment can increase the period during which the loan balance is greater than the value of the vehicle.
Compare the total cost, not just payment
A longer loan can be useful for cash flow in some situations, but compare the complete cost before choosing a term.
Source
Consumer Financial Protection Bureau auto-loan guidance and loan-term example.
This guide is educational and is not lending or financial advice.