A $30,000 car loan over 48, 60 or 72 months
A lower payment can cost more. Here is by how much.
Same loan, three terms
Borrowing $30,000 at 7% a year, repaid in equal monthly payments:
48 months: $718.39 a month and $4,482.61 of interest. 60 months: $594.04 a month and $5,642.12 of interest. 72 months: $511.47 a month and $6,825.87 of interest.
What the longer term buys
Going from 48 to 72 months lowers the payment by $206.92 a month, almost 29%, but adds $2,343.26 of interest, 52% more. You also owe money on the car for two more years, often longer than the car is worth what you owe, which matters if you sell or trade it early.
In practice lenders often charge a higher rate for longer terms, which widens the gap further. Try the 72-month line at 8% instead of 7% to see it.
How to choose
Pick the shortest term whose payment fits your budget with room to spare. A common rule of thumb is to keep all car costs (payment, insurance, fuel) under about 15% of take-home pay.
A larger down payment does the same job from the other side: putting $5,000 down on the same car leaves $25,000 to borrow, and over 60 months that is $495.03 a month and $4,701.82 of interest instead of $594.04 and $5,642.12.
If you take a longer term for safety, you can still pay extra each month: open Extra payments in the loan calculator to see the interest it saves.