As the trend of seven-year auto loans rises, accounting for nearly 20% of new vehicle financing in early 2025, many buyers are lured by the allure of lower monthly payments. While it may seem like a smart financial move to stretch loan terms to make vehicles more affordable, this approach can lead to significant long-term costs. For instance, financing a $40,000 car at 6.5% interest over seven years may reduce monthly payments from $782 to $593, but the total cost of the loan increases by nearly $3,000 compared to a five-year term. Additionally, longer loans often come with higher interest rates and increase the risk of being upside-down on the loan, where the owed amount exceeds the car's value due to rapid depreciation. Buyers should carefully consider their financial circumstances, potential future changes, and the total cost of the loan before committing to a seven-year term, and explore options like larger down payments and shorter loan durations to save money.
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