When you’re in the market for a new car, it is advisable to consider financing before you visit the dealership. But what length of auto loan should you choose? Three-, five- and six-year loans are the most common options available, and once upon a time, the latter option was popular. However, as numerous automotive industry studies indicate, the six-year (72 month) auto loan is going the way of the dinosaur.
The 72-month auto loan has its drawbacks
According to Yahoo Answers, consumers should consider how long they plan to keep their car when they look at length of loan. It is common for people to trade their car in after only three years, so a 72-month auto loan in that scenario is a detriment. An upside down loan, where more is owed than the vehicle is worth, is a distinct possibility here. If you are the type of person who plans to keep the car for five years or longer, then the 72-month auto loan would make more sense. Cars Direct reminds us that if the loan has simple interest, you can still pay down the principal balance quickly, effectively reducing the terms of the loan and the amount of interest you’ll pay.
Credit unions tried and failed
The 72-month auto loan was a flagship auto finance product for many credit unions, reports Automotive News. The promoted the loans aggressively in order to compete with zero-percent financing packages being offered by auto manufacturers. But data from Kelley Blue Book (KBB) and other sources suggests that the 72-month auto loan has fallen in consumer popularity. Sixty-month auto loans are the most popular in America, followed by a near second-place tie between 48- and 36-month auto loans. The 72-month auto loan is far behind, a fact KBB attributes to the recession and its affect on consumer credit. A larger down payment on more affordable vehicles is the current wave. Dealers lose out on finance profit, while consumers are coming back with trade equity.
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