The Pros and Cons of Long-Term Car Financing

March 26th, 2019 by

BMW M4 green sports coupe , tuning M4 front-view exterior

A couple of cars in the garage and a chicken in the pot was the American Dream back in the day. While the country has progressed by leaps and bounds, the American Dream still stands as it is. Families look for ways to get their hands on their preferred car and drive it around town. However, even used cars are often too expensive for some families in the country.

This growing disparity between the resources available and the wants of the people means that many families are going towards the feasible option of long-term car financing to get a hold of their desired used car.

Knowing that many people have this option in their head, here we will be discussing the option of long-term financing for your used car, and the pros and cons that are associated with it.

Just like every other financial loan or investment, there are certain pros and cons associated with this method. While there is no certainty on which side outweighs the other, we mention these pros and cons here to assist you in forming your own decision. These pros and cons stand regardless of whether you are buying a car from an auction or from a dealer.

Happy car buyer Buying a used car


The pros of buying a used car through long-term car loans have been discussed quite often. Here we will write the most important ones to help you make a decision for the future.

  • Monthly Payments

One of the biggest advantages of a long-term car loan is that you have more time to pay the loan off. Even if the long-term finance for your used car is marked at 5 years, this equals 60 months with 60 equilateral payments.

The increase in the period of the loan and the number of the months means that the monthly payments you make in this regard would be way less than what you would make if the loan was for a 3 year period. More time means more time to pay the loan off, and lesser burden on you upfront.

You can use this benefit in your favor to achieve further benefits like buying an even expensive car, because the payments wouldn’t be as astronomical as they would be for a shorter period. A certified pre-owned car is what you would have your eyes on. With more time to pay the loan off, you would be able to afford a car, which you previously never expected to.

  • Refinancing

With a greater period for car loans, you can always use the option of refinancing down the line. If the interest rates are increasing and the monthly principle amount has gone up, then you can refinance the whole payment plan and change the number of years for the expected loan to be paid back. You can lower the monthly payments further through this method and drive your dream car, without having to worry about the financing.


  • Interest Rates

Obviously, not everything about long-term car loans is perfect. Since long-term auto loans for used cars give you lesser risk and longer periods to pay the loan back, the interest rates on them are higher than that on some other loans. This means that you will be paying more for a long-term loan on a used car than on a short term loan.

The interest rates for long-term loans have been kept higher, because the account holder or the financing party has to wait for longer to get their money back in full. So, while your monthly payments would be lesser than what you would pay for a short term loan, the total amount will be way more, because of the higher interest rate being charged on it. So, you would be sending over a ton of free money to the lender, which you could have invested somewhere else.

  • Depreciation

Depreciation is a recognized accounting concept, which perfectly applies here. The concept is used to account for the decrease in the value of an asset over the period of its use. Cars depreciate a lot over their expected life and their value can fall over the matter of years. Since you are buying a used car, you would see the value fall drastically in the next 5 to 6 years. So, with long-term car financing options, there would soon come a time when the value of your car would be lesser that the amount you still have to repay.

Long-term car financing options have both pros and cons associated with them. Form your decision now, having read the pros and cons above.

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