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Long Term Car Loans

In this day and age of a rising cost of living and many Americans struggling with a tight budget, the average length of a new car loan continues to rise at a rapid clip, The Detroit News reports. As recently as a few years ago, the vast majority of car loans were for a 4-5 year term or less. Now in 2013, a full 30% of new car loans (including leases) are for 6 years or more, with a growing number of buyers choosing to borrow for 7, 8 or even 10 years .

While it may seem tantamount to financial suicide to extend an interest-bearing loan over a much longer period of time, rock-bottom APR financing rates have made the practice not necessarily a bad deal for the consumer. Carmakers and dealership finance departments continue to offer zero-interest or very-low-interest loans with an extended finance term, a practice that won’t let up any time soon as the industry has become much more interested in moving metal than making a killing off of interest.

Take the case of Michigan man Bradley Gallant, who recently financed a 2013 Honda Accord over 72 months at an APR of 1.89%. While Gallant’s monthly payment was a full $130 lower than had he borrowed for a typical 48 months, he will only end up paying a total of $370 in additional interest compared with the shorter loan. The money saved can be put to use via investments, or for many of us, towards recurring bills like car insurance and groceries.

A word of caution, though: car shoppers with poor or even average credit would be better served to opt for a less-expensive model on a short-term loan, or a used car, as once interest rates climb with risk an extended-term loan can lead to a much, much higher total out-of-pocket cost.

But for those with solid credit, a long-term loan can bring the ability to upgrade from a compact car to a family sedan, or from a family sedan to a luxury car. And even as mortgage interest rates are climbing, auto industry analysts predict that long-term, low-APR loans might be here to stay for at least another year or two.

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