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Longer Car Loans More Common

September 19, 2012, 9:50 PM by Angela Kennecke

Longer Car Loans More Common

Cars are selling, thanks to low interest rates and special financing deals.  But a new study also shows that some consumers are stretching out their car payments for as long as seven years.

Jim Droppers likes to check out new cars in the showroom while he has his current vehicle, a Grand Cherokee, in for service.  He took out a five year loan for that vehicle and says he wouldn't want to stretch it any longer. 

"I think for the use of your money the better option would be if you had to go to that would be to go to a lease and just pay the value of the vehicle you are using versus taking the opportunity to have a lot of money tied up in a long tern loan," Droppers said.

Kevin Rost of Sioux Falls Ford says leasing can be a better option than a long loan of six to seven years.  He says his dealership doesn't even offer seven year loans because they're not fiscally sound for the consumer.

"A five year loan, you can pay down the value of the vehicle a lot quicker. The seven year loans, that's just a long time because the depreciation far outpaces the amount you're paying on it," Rost said.

For example, this F-150 truck would cost you about $550 a month on a five year loan with no money down. Stretch it to seven and it will run about $100 cheaper a month, but cost you more in interest in the life of the loan.  A three-year lease on the same vehicle is $300 a month.

"If you were to do a seven-year loan, you really can't come trade that back into us for about five to six years because the first two to three years; it's going to be tough. You're going to owe more on the car than it's worth," Rost said.

With deals like zero percent financing or conventional auto loans running between three and five percent interest, stretching out that car payment to get a more expensive vehicle just doesn't make good financial sense.

"They always say it's better to sleep on it when you find something you just can't live without," Droppers said.

Despite the costs, according to, the average loan for a new car has grown to 65 months; more than five years.

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