Donate Car to Charity California, Donate Car for Tax Credit, Donate Cars in MA, Donate Your Car Sacramento, How to Donate A Car in California, Donate Your Car for Kids, Donate a Car in Maryland, Donating a Car in Maryland, Donate Cars Illinois, Donate Old Cars to Charity, Met Auto, Car Donate Are you following Clark’s maximum auto loan length rule? Theo Thimou Theo Thimou | May 9, 2018 1:30 pm Home Cars Are you following Clark’s maximum auto loan length rule? 1 Comment Share This Article Are you following Clark’s maximum auto loan length rule? Team Clark is adamant that we will never write content influenced by or paid for by an advertiser. To support our work, we do make money from some links to companies and deals on our site. Learn more about our guarantee here. Advertisement The average length of an auto loan in the U.S. is now 69.5 months, up nearly four full months since 2013, according to new figures from Edmunds.com. Unfortunately, money expert Clark Howard says that’s nearly 30 months longer than any auto loan you should ever take out! RELATED: The eye-opening truth about dealer invoice prices 3 reasons why 72-month auto loans are bad news Back in 2009 at the height of the Great Recession, 26% of auto loans stretched for terms of six years (72 months) or longer. But within just the last year, that number has skyrocketed to 42% of all auto financing being for a payback term of six years or more. That’s according to numbers from the CFPB. Six-year loans are alluring to a lot of consumers because they let you stretch the length of your loan out to achieve a lower monthly payment. That’s why they’re often used by consumers with low credit scores. The average credit score for a person with a six-year loan is 674 — a full 39 points below the average for five-year borrowers, the CFPB reports. Here are some other drawbacks of longer loan terms: They’re more costly in the long run You’ll spend thousands more over the life of a six-year loan versus a five-year loan. Let’s say you finance $20,000 at 5% for five years. After three years, you’ll have paid $2,190.27 in interest and you’re left with a remaining balance of $8,602.98 to pay over 24 months. But what if you extended that loan term with same interest by 12 months and gotten into a six-year loan? After those same three years pass, you’ll have paid about $152 more in interest over 36 months, plus you’ll have a remaining balance of $10,747 to tackle over the next 36 months. So the net effect of selecting a 72-month loan (instead of a 60-month loan) is that you’ll pay some $2,000 more over time, according to CFPB’s calculations! You’re likely to finance more money “The average loan amount for a six-year loan was $25,300, compared to $20,100 for a five-year loan,” the CFPB writes. “The average size of loans with terms of seven years or more was even larger at $32,200.” You’re more likely to default Borrowers with six-year loans are about twice as likely to default than those with five-year loans. The CFPB finds six-year borrowers have a more than 8% default rate, while five-year borrowers have a default rate in the neighborhood of 4%. Clark: 42 months should be your max auto loan With all this talk of the merits of a five-year loan, you might think that an auto loan payback term of 60 months is ideal — but it’s not! Consumer expert Clark Howard has long advised people that even shorter is better when it comes to auto loan terms. “The longest auto loan you should ever take out is 42 months,” Clark says. “If you can’t afford the payment on a 42-month loan, then you should buy a cheaper car.” Buying a cheaper car may mean having to buy a used car instead of a new vehicle. But you might be surprised how much car you can get for not too much money. Here’s a look at the best used cars for between $5,000 and $10,000: Subcompact cars Honda Fit, 2007-2011 Compact cars Pontiac Vibe, 2007-2010 Toyota Corolla, 2007-2011 Toyota Matrix, 2007-2008, 2010 Toyota Prius, 2007-2009 Large and midsized cars Honda Accord, 2007 Toyota Camry, 2007-2008 If you have a bigger budget to work with, we’ve got a list detailing 17 of the best used vehicles that you can get for $15,000 or less! RELATED: How to get out of a bad car loan Here’s why you really shouldn’t use roadside assistance through your auto insurance
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