Which car loans have the longest loan terms?

author-avatar By on March 09, 2021
Which car loans have the longest loan terms?

The most common car loan terms are usually three to five years, but did you know that some lenders offer loans for as long as 12 years?

We’ve covered seven-year car loans before, which are growing in popularity. The average length of car ownership in Australia is 10.1 years, according to the Australian Bureau of Statistics (ABS), and there are options out there for someone who wants to extend their car loan for as long as they own their vehicle.

The main benefit of a longer loan term is that your monthly payment is lower than if you selected a shorter term. But at what cost? Compare some of the longest-term car loans available in the table below, and find out whether they’re worth it.

Pros and cons of long-term car loans

There are a few things you’ll need to weigh up with a longer car loan term. Mostly it comes down to striking a balance of a repayment that works with your budget and the total interest paid overall. Some considerations are below.

Pros of long-term car loans

  • Lower monthly payments: The monthly payment on a 5% p.a. interest rate over five years for a $30,000 loan is $566, as opposed to a seven-year term’s monthly repayments of $424, assuming there are no additional fees. This can make them more affordable in the short-term.

  • Terms as long as 12 years: If you’re determined to keep your car as long as possible, you could stretch your loan out for the length of ownership.

Cons of long-term car loans

  • More interest and costs accrued overall: Using the 5% example above, a five-year term means you’d accrue $3,960 in total interest costs, compared to $5,616 over seven-years. Of course, this isn’t accounting for any extra fees, which there could be more of should you extend your car loan past seven years.

  • Higher risk of negative equity: Negative equity is owing more on the car than what it's worth at market value. If you write-off your car, then that could be a significant gap out of your own pocket that your insurer doesn’t pay to your lender. Of course, this is true for any loan term, but cars generally dwindle in value past the seven-year mark.

A 2018 report by the Financial Times said “Lenders in America’s $1.2tn car-loan market are extending terms for as long as eight years, meaning they face a greater risk of defaults and meagre recovery values”. This suggests that longer-term car loans are riskier for both lender and borrower, which is probably why there aren’t as many of them.

So it’s important if you’re thinking of opting for a longer car loan to consider whether you have the capacity to stay on top of or even get ahead on your repayments.

Savings.com.au’s two cents

If you’re thinking of a car loan, you’ll probably need to work out how that monthly repayment works into your budget and go from there. Short-term car loans can be good because of the smaller interest costs overall, but you might not have the stomach to pay extra every month.

It might be worth paying a little extra in interest to make sure you’re not going to default on the car loan. With groceries, bills, and life seemingly only getting more expensive, you don’t want to risk having your car repossessed as well.

Longer-term car loans aren’t inherently a bad thing, but consider your motivations with opting for one in the first place. The more interest paid over the life of the loan could ultimately go to a rainy-day fund, a holiday, or towards paying off other bills.


Photo by Fluid Imagery on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $30,000 loan over 5 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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Harrison is a Senior Finance Journalist, and joined Savings in 2020. Prior to joining Savings, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about informing readers on the strings being pulled in high-up places and how it affects everyday Australians.

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