With loans that long and no interest at all, monthly car payments can be very low. That’s assuming, of course, your credit score is good enough to qualify. But, experts warn, don’t get so fixated on that very enticing interest rate that you forget to consider all your options. It may not be the best deal for you.
There are some risks with taking these very long car loans. The main one: That you’ll still be making payments long after the new car smell has gotten lost behind a forest of cardboard pine tree air fresheners.
You might not like the car so much by then, even if you loved it when you bought it. Also, your needs might change, said Michelle Krebs, an industry analyst with Autotrader.com. A lot can happen in seven years.
“If you’re going to buy a small car how would you know what your life is going to be like in that amount of time,” she said.
You might need a bigger car, maybe even an SUV or minivan, before then. Also, new cars with fancy new technologies could start to look appealing a few years down the line. Maybe you want to go electric some time before 2027.
Then there’s a fundamental math problem. The longer you stretch out your loan, the longer you’ll be “underwater” on your new car. That means you will owe more money on the car than the car is worth. All new vehicles lose value the minute you purchase them. The drop in value is steepest at the beginning — right after it changes from a new vehicle into a used vehicle — then tapers off to a gradual decline over the years.
The amount you owe on the vehicle, on other hand, declines at the same rate each month as you make each payment. With a longer loan and smaller payments, that slope will be shallower. That increases the amount of time during which you’ll owe more money than your car is worth.
“It puts the transaction in a bit of a negative light in terms of ‘Oh man, I’ve got this car and it’s not even worth as much as my loan’,” said Jessica Caldwell, an analyst with Edmunds.com. “It’s just not a good feeling.”
If you’re happy with your car or crossover and plan to keep driving it, that’s not really a problem. It’s only a problem if your needs change or you just