5 Things You Need to Know About Long-Term Car Loans
Here's what you need to know about long-term car loans
Long-term car loans are becoming increasingly popular. In recent decades, the length of a car loan was generally a maximum of five years. However, there has been a general move, both in Australia and abroad, towards long-term car loans with lengths of over 90 months in some cases.
If you're not sure if a long-term car loan is right for you, we can help you choose the right car loan option for you.
1. How long is a long-term car loan?
The average car loan is now close to 6.5 years, which is substantially more than a decade ago. In 2018, a high percentage of car loans were for terms of over 60 months and close to 20 per cent of loans are for 70 month terms, with some reaching way above 80. The introduction of 84 month car loans are generally considered the top end of long-term car loans in Australia, yet it looks like it could be creeping upwards.
2. Who does a long-term car loan suit?
Generally, people looking for car loans are advised to look for the shortest term loan with the best possible interest rate, but this won’t be right for everyone.
Long-term car loans suit people who want to pay the cost of their car off over a longer amount of time. They want to have small monthly repayments, which a long-term car loan provides. The reasons for this could be varied, but generally, they may want to purchase a more expensive car but don’t have the available cash to pay for it quickly.
People who opt for a long-term car loan often have a big life event occurring at the time of purchasing the car or in the immediate future – this could include paying for a wedding, expensive medical care or buying a home.
3. How much more do you pay with a long-term car loan?
The extra costs of long-term car loans are almost exclusively connected to the extra interest you’ll be paying for the extra loan term. It can be easy to see the lower monthly repayments, yet overlook the fact that the longer term of the loan means you’ll be paying it off (with interest) for a longer period of time.
Think about this:
If you purchase a car for $30,000 and you agree to a loan term of 5 years with an interest rate of 6%, the total that you’ll pay back will be $34,799. However, if you increase the loan term to 7 years, you’ll increase the overall cost to $36,814. This pattern continues the more you increase the term of the loan.
You do need to understand that you are paying a lot of money (once total interest and fees have been added as well) for an asset that is probably depreciating in value each day.
4. Things to watch out for with a long-term car loan
- Monthly Fees: lower repayments are all very well but monthly fees for long-term car loans are usually high to compensate – over the course of the loan these will build up.
- Depreciating Car Value: the longer you own the car, the more it will depreciate in value – you could end up paying back a loan that is worth more than the value of the car.
- Repair and Maintenance costs: remember that the longer you have the car, the higher the chances of something going wrong with it.
5. Is a long-term car loan right for you?
This is often a tricky question to answer yourself so it’s always best to ask the experts. We have decades of experience helping people to find the right car loans for them, and will be able to offer you peace of mind by talking you through the best options available to you. Our team are always happy to hear about your individual circumstances and advise you accordingly.
Find out how we can help you find the right car loan for you.