3 Reasons Why You Should Absolutely Not Take Out a Long Car Loan

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Don’t take out a car loan without reading this. 

If you can’t buy a car with cash, chances are good you’re going to end up taking out a loan to purchase one. But if you need to borrow to buy a car, you don’t want to take a loan with a long repayment timeline. In fact, when it comes to this type of debt, the shorter the loan payoff, the better.

Here are a few key reasons why a long car loan is bad news.

1. You could end up owing more than your car is worth

Cars are typically not assets that go up in value. The minute you drive your vehicle off of the car lot, the value of the car declines.

If you take out a long car loan, you won’t pay down much of the balance with each payment. If your car loses value more quickly than your principal balance declines, you could easily end up with a car that’s worth less than your outstanding debt. This is especially true if you made a small down payment.

Being underwater on your car loan could be a huge problem. You won’t be able to sell the vehicle without coming up with the difference between the price you get and the amount you still owe. If your car is totaled in an accident, you also wouldn’t have enough money to pay off your loan balance (unless you had gap insurance and your insurer covered the difference).

If you take a shorter term loan, though, you reduce the chances of this happening because your balance declines much faster.

2. You could pay a fortune in interest

The longer the term on your car loan, the longer the period of time when you will be stuck paying interest. Interest makes your car a lot more expensive in the long run since this is just extra money you send your creditors.

Car loans that have longer payoff times also tend to have higher interest rates than those with shorter payoff periods. So not only will you pay more because you get stuck with interest for longer but you’ll also owe higher financing charges due to the higher rate.

3. You could be stuck with a car loan forever

Most people don’t keep their cars for a very long time (although they probably should). If you take out a long car loan, then by the time the loan is paid off, you may be ready to go trade in the vehicle. This could mean immediately taking out a new car loan again.

If you keep doing this, you’ll live your whole life with a car loan and never get to use the money you’re sending to creditors for other things. With a loan that has a short payoff time, on the other hand, you may be able to pay it off and still keep your car for years to come. You can redirect the money you were paying on your loan to saving to pay cash for your next car or to other important financial goals.

For these three reasons, you should absolutely steer clear of a car loan with a lengthy timeline for repayment, and instead opt for the shortest loan term you can possibly afford.

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