First the three-year car loan was the standard. Then the five-year car loan became the standard, but not anymore. Increases in new car prices have consumers pushing the payment terms to 72 months. The longer term has led to greater costs. 72-month loans have higher interest rates, lead to negative equity, and devalue the used car market.
“When you lengthen the term of your loan, you are pushing out your negative to positive equity,” says Eric Lyman, VP of editorial and consulting for ALG, the Santa Barbara, California, automobile industry research company. Thus, it takes you a lot longer to obtain an equity position in your automobile. Additionally, this negative equity leads to a decrease in the value of used cars already in the market.