As the cost of new and used vehicles continues to rise, some lenders are offering auto loans with terms of 100 months or more. While these loans promise lower monthly payments, financial experts caution that the long-term costs and risks outweigh the short-term benefits.
Eric Croak, president of Ohio-based financial firm Croak Capital, described such loans as 'madness', noting that a car typically loses 20% of its value before its second oil change. With a 100-month loan, borrowers face higher interest rates and significantly more interest paid over the life of the loan.
For example, a $50,000 loan over 100 months would result in around $22,000 in interest for a borrower with good credit, compared to about $6,000 over 48 months, according to rate data from Navy Federal Credit Union. The monthly payment would be roughly $450 lower, but the total cost is far higher.
Michael A. Klitzke, CEO of California-based Auto Law Firm, told The Independent that the total cost of a 100-month loan could be more than double the vehicle's price. Additionally, borrowers are more likely to be 'underwater'—owing more than the car is worth—for a significant portion of the loan, increasing financial risk in the event of an accident, job loss, or need to sell the vehicle.
David Johnson, CEO of lending servicer Vervent, echoed these concerns, noting that lower monthly payments come at the cost of years of extra interest and prolonged negative equity. Ashley Morgan, an attorney and owner of Ashley F. Morgan Law, advised that if a 100-month loan seems the only option, buyers should either increase their income or purchase a cheaper car.
