Auto Loan Financing Rates: Which Ones Are Too Good to be True?
You’ve probably seen auto ads that try to entice you with taglines like “0% APR financing for 84 months” or some other number pretty close to 100. Just a few years back, the common loan length seemed to be 60 months, maybe 72. So, what gives?
How long should a car loan be financed for?
How Long Your Auto Loan Should Last
For cars under $30,000, financial experts recommend an auto loan of 60 months*. It is a good balance of manageable payments and low total interest owed. However, the best auto loan for your situation depends on your budget. Longer auto loans give you lower monthly payments at the cost of higher interest rates. Conversely, shorter auto loans have higher monthly payments, but lower interest costs. While many auto loans receive 0% APR for the first 12 months, the interest afterwards is usually higher than average to make up for the lost interest.
*at 4.36% APR, the average interest rate for auto loans in the first fiscal quarter of 2020
How Interest Adds Up
When it comes to auto loans, for both new and used cars, the shorter the term, the less you’ll pay in the long run due to interest. For instance, if you were to buy a $35,000 vehicle on a 60-month loan at 6% APR, your monthly payment would be $676.65. That’s manageable for many, but is still pretty high. When everything is said and done, you’ll pay $5,598.88 in interest, totaling $40,598.88. Contrast that with a 96-month loan on the same car at the same interest rate. The monthly payment is $459.95, but you’ll end up paying $9,155.21 in interest, totaling in $44,155.21. Put another way, with the 60-month loan, 14% of your payment goes to interest; with the 96-month loan, 21% goes to interest.
Want a Low Rate on an Affordable Vehicle?
You’re in luck. Here at CrossPointe Motor Cars, we believe in a transparent and no-hassle buying experience. That includes financing. If you’re looking for an affordable, high-quality used vehicle without getting hoodwinked, give CrossPointe a call.