96 Month Auto Loan – Crazy or Not?

Believe it or not, it is now possible to get a 96 month auto loan from some car lenders. Yes, this means you can stretch that loan out for eight years, leaving you paying less per month, but far more in total interest down the road. Here are some thing to consider before choosing this option.

From the point of view of someone looking over their options on the Internet, financing a vehicle for 8 years just sounds like a bad idea, and it is not usually recommended. The total interest paid will be far more than with a more traditional loan, even the longer ones, such as 72 month auto loans (6 years) and 84 month auto loans (7 years). However, to the person standing in front of their dream car, anything that might make bringing it home possible begins to sound like a great idea. You should never let “car fever” cloud your judgment. That said, there are a few situations where 96 month financing might actually be a realistic option.

Classic cars are a good example. Because they’re not subject to the same depreciation of value as newer vehicles, where it’s all about reliability and, therefore, age, they do not lose value simply because time passes. In fact, they often increase in value instead. The same goes for a car that you may plan to restore. If the restored version of the car will sell for quite a bit more than the original financed amount, one can use 96 month car loans to buy cars that may have otherwise been out of reach, and then turn around and sell them for a profit, paying the loan off in the process.

However, the prospect of trading in or selling your vehicle before the full loan has been repaid brings up a problem especially prevalent with long term auto loans: negative equity, aka “upside down car loans.” Essentially, you have negative equity in a vehicle when you owe more on it than its worth. With a shorter term loan, you are typically in this position for less time than with a 6, 7, or 8 year auto loan. With such long term financing, you may be stuck with the vehicle for 5-6 years before you can sell it or trade it in and not lose money. Of course, with a classic car or restoration project the appreciation in value may negate this problem. Additionally, putting down a substantial down payment of 15-20% can mitigate the amount of time you have to be upside down on your car loan, if not prevent the problem altogether.