Because new car loans are available at longer and longer timelines, people have been looking at extending their new car loans more and more in recent years. In fact, the monthly payments on cars have actually dropped in the last few years due to the fact that people have been choosing the longer payments on their new car loans, rather than shopping for more sensibly priced cars or working on lowering their interest rate.
The problem with extending your new car loan for over four years is twofold. First you will find that you are paying far more interest on a car that is paid off over 5, 6, or even 7 years than one that is paid off after 3 or 4 years. The other problem is that you may quickly find that your new car loan has become an "upside-down" loan. An upside-down loan is one in which you owe more on the car than it is actually worth. Most cars depreciate in value rapidly in the first two years of ownership, which isn't too bad in a three year new car loan. However, in a 5 to 7 year car loan, it's a very helpless feeling to realize that you have three to five more years left to pay on a car that isn't even worth what you owe.
If you find yourself in that sort of predicament, you need to just continue to pay on your loan until you are at least down to the point that what you owe is equal to what the car is worth before you try to trade it in on another car. If you don't do this, then you will roll over all your current debt from this car into your next new car loan and keep snowballing your debt over and over.
The best things you can do to keep your monthly payments on a new car loan down in a shorter term is to make as large a down payment as possible. It makes sense if you think about it. The more money you're able to pay, the less you have to borrow as part of a new car loan. The less you have to borrow, the less you have to pay each month even on a shorter term. Another thing that will help as well is to shop around with a variety of banks and credit unions and try to secure the lowest interest rate on a new car loan before you ever look at cars at the dealership. If you combine these two things, it will simplify your life tremendously in regards to a new car loan.
