A longer loan means higher interest costs. That’s because you’re making payments for a longer period of time, and longer loans often have higher rates.
To find out how much more you might pay, the Consumer Reports Money Lab calculated the difference between 48-month and 72-month loans on a $32,765 car, with a negotiated price of $30,520. As the table below shows, the longer loan will cost you about $1,600 more, assuming a 10 percent down payment. If you put 0 percent down, the difference climbs to more than $1,800.
And longer-term loans are more risky. That’s because cars depreciate over time, with the quickest loss in the early months. So unless you make a substantial down payment or have a high-value trade-in, your new vehicle initially will lose value faster than you’re paying for it.
Owing more than the car is worth is known as being upside down. At some point as you pay off the loan, you’ll no longer be upside down and will begin building equity in the vehicle. But the longer the loan, the longer it takes for that to happen. If you decide to trade in the car during that upside-down period, you’ll probably get less than what you still owe on the loan. And the vehicle’s depreciated value is typically the maximum amount your insurer will pay you if your car is seriously damaged or stolen. If you’re within the upside-down period, that amount won’t be enough to pay off the remaining loan balance.
As the graph below shows, the upside-down period on a 72-month loan with no down payment lasts until about the 30th payment, based on our $30,520 purchase price, current loan rates, and average depreciation. For a 48-month loan, the upside-down period lasts only about a year.