Pros & Cons of Longer Car Loans in Canada

Pros & Cons of Longer Car Loans in Canada

Posted on July 22, 2022

More Canadians than ever are using longer auto loans to buy cars. Rising prices, the increased popularity of electrics and hybrids and out desire to drive better cars are all driving this move.

But are they good value? Are they a good idea? Our Port Dover car loans team outlines the pros and cons of longer loans to help you decide.

Longer term Auto loans

Longer term car loans generally mean 72 or 84 month terms. That’s 6-7 years. A long time to have a car loan but also a means of getting what you want.

Pros of longer term car loans

Lower monthly payments – A key benefit of a longer loan is lower monthly payments. You’ll end up paying more in the long run but the immediate expense is much more manageable.

Borrow more – You can also keep the same amount of payment but borrow more. As long as you can afford it and have sufficient credit score, you can borrow more while keeping things affordable.

Drive a newer or better car – While similar to borrowing more, a common motivation for borrowers is to drive a more premium car or a much newer car. These are inevitably more expensive, which a longer car loan helps with.

Consolidate debt – Another reason for longer car loans is to borrow more to buy a car and to consolidate other debts. Paying everything else off and having just a single payment each month is an effective way to manage debt.

Cons of longer term car loans

More expensive over the term – Loan interest is paid monthly and calculated annually so the longer you have the loan, the more interest you’ll be paying.

Higher interest rates – Depending on the loan and the lender, you may pay slightly higher rates for longer car loans to offset the increased risk of defaulting. The longer the loan, the more opportunities to default.

Negative equity – If you’re buying new, you’ll likely be in negative equity for longer. Not an issue if you’re keeping the car for a while but if you’re planning a quick upgrade, it’s something to watch out for.

Old car – 7 years is a long time in automotive terms and longer term car loans mean you’ll still be paying for an older car. Not always an issue but it might be for some.

Increased maintenance and running costs – As cars age, they get more expensive to run. Parts, oil, maintenance, tires and everything else will slowly increase the financial burden on top of the car payment.

As you can see, there are definite pros and cons to longer term car loans. Which are most appropriate depend entirely on your situation and the type of car you’re buying.

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