72 Month Car Loan and Car Loan Interest

Some drivers who need new wheels like the sound of a 72 month car loan and the low monthly payments that come with it. But, problems can lurk in the background of these long-term options, including the risk of negative equity (when a vehicle owner owes more than the vehicle is worth) and other financial liabilities. The problem often lies in calculating compounding interest for a vehicle loan.

A lot of long-term car loans are financed by dealerships who want to get car shoppers into late models or more expensive vehicles. They may be able to entice many buyers by offering long-term car loans, but what they generally don't stress to the borrower is that the interest on these types of loans tends to spiral out of control without careful observation.

What a potential borrower needs to do is calculate all of the interest they will end up paying on a vehicle according to the APR, loan term, and overall agreement. The good news is that because unsecured loans (loans not backed by collateral such as a home or other vehicle) generally come with fixed rates, it is possible to easily determine what a driver will pay over the entire term of the loan.

When a car shopper does this, what he or she will find is that a borrower often ends up paying nearly double the interest on a loan when lengthening it by two or three years. That's why financial experts suggest getting shorter-term auto loans and buying only what a driver can afford with moderately-sized monthly payments, rather than stretching those payments out over a longer period.

Anyone who doesn't believe these kinds of interest projections can see for themselves with online loan calculators such as this one from BankRate. Users can enter the amount of the loan, the monthly payments and other loan terms to come up with the total cost for the entire auto loan.

In a down market, lenders get nervous and tighten up a lot of the restrictions for offering auto loans to the public. This means that borrowers can get little help from lenders who will require more upfront payment and more proof of affordability rather than less. The exception to this rule comes from aggressive lending by dealers who may be quick to extend long-term auto loans with high interest rates, but who also may be quick to repossess vehicles and "turn them over" for even more profit, leaving the hapless car buyer with the bill.

The moral of the story is that potential car buyers should take care to see what they can afford, and avoid stretching out their loans to compensate for a cash crunch.