72-month car loans are also riskier if you expect to purchase a different car before the six years are up. Depending on your car's condition and the demand for your car's make and model, you could sell this car during the loan for less than the outstanding balance, a situation known as negative equity.
Pros: Lower monthly payments: Many choose to get a 72-month loan because the monthly payments are lower. And, borrowers may be able to get a more expensive used or new car and still stay within their budget.
Rates and terms are subject to change without notice. Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
72 months equals 6 years. To figure this out, we recognize the well-known relationship between months and years. That is, there are 12 months in 1 year.
If you take a car loan of $40000 at an interest rate of 4.12% for a loan term of 72 months, using an auto loan calculator, you can find that your monthly payment should be $628. When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.
You could save interest and free up room in your budget by paying your auto loan off early. There are several options available — including refinancing, paying biweekly and rounding up payments, just to name a few. Confirm your lender doesn't charge a prepayment penalty since the cost could be more than what you save.
For example, if you're buying a $60,000 luxury car at 3% APR with no money down and paying it off over five years, you'll be responsible for paying about $1,078 per month.
NerdWallet recommends spending no more than 10% of your take-home pay on your monthly auto loan payment. So if your after-tax pay each month is $3,000, you could afford a $300 car payment. Check if you can really afford the payment by depositing that amount into a savings account for a few months.
How Much Does 2.9% APR Cost? On a $40,000 SUV, a 60-month (5-year) loan at 2.9% would cost approximately $3,018 in interest. On a 72-month (6-year) loan, it would increase to $3,629. We've even seen 84-month financing incentives that could translate to $4,245 in interest.
Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment. If that leaves you feeling you can afford only a beat-up jalopy, don't despair.
With more time for interest to accrue, you will pay more
Upfront, a long-term car loan may seem like a good deal, because monthly payments are lower when compared to a shorter-term loan. In the long run though, you'll pay more total interest and the amount could be significant.
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A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 5 year term will have a monthly payment of $566.
Pay off your auto loan early
While financial situations can vary, there are generally a few ways to go about paying off a car loan early, including: Simply requesting the payoff amount from your lender and paying off the loan in full. Putting a little extra money toward your principal loan balance each month.
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses. Make sure your car payment does not exceed 15%-20% of your total income.
Some banks and credit unions may offer 72 months on a 3 or 4 year old car for most consumers, but may limit others based on credit criteria. Factory supported lenders (like BMW FS, Ford Motor Credit, ETC) may offer longer terms on their own brands, but limit off brands.
To calculate an affordable car payment, use the recommended 20% down and 60-month maximum loan term. Based on those terms, a person making $100,000 a year can afford a $61,000 car, assuming their other expenses allow for a monthly payment of approximately $931.05.
There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
Experts say your total car expenses, including monthly payments, insurance, gas and maintenance, should be about 20 percent of your take-home monthly pay. For non-math wizards, like me – Let's say your monthly paycheck is $4,000. Then a safe estimate for car expenses is $800 per month.
Extra payments made on your car loan usually go toward the principal balance, but you'll want to make sure. Some lenders might instead apply the extra money to future payments, including the interest, which is not what you want.
Yes, you can make your monthly payment in two or more installments, as long as the minimum monthly amount is satisfied by your due date.