It depends on the lender, but seven-, eight-, and even ten-year car loans are not unheard of. Generally, the longer the term of the loan, the lower the monthly payment but the higher the total amount of interest paid. The average cost of a new car in 2012 is about $29,000. Suppose someone has $9,000 from savings and/or a trade-in car and borrows $20,000 to buy a car. Assuming an 8% interest rate, a three-year loan would cost $627 per month for 36 months with interest charges of $2,562. A five-year loan would cost $406 a month for 60 months with a total interest cost of $4,332.
In addition to higher financing costs, longer car loans also make car owners "upside down" for longer periods of time. This means that their car is worth less than they owe due to rapid depreciation of value and slow pay-off of the amount borrowed (principal).
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