Experts warn about pitfalls of long-term auto loans

Jun 28, 2018, 5:25 PM | Updated: 9:23 pm

SALT LAKE CITY, Utah – Here’s one surefire way to give your financial advisor heartburn – take out a car loan of seven or even eight years. That’s what more and more car buyers are doing to get lower monthly payments.

In its recent state of auto financing report, Experian says the average loan for a new car has reached 69 months.

“You’re just asking for a long term problems,” says certified financial planner Shane Stewart of Deseret Mutual.

Stewart says, yes, you’ll lower your monthly payment. You’ll also pay a lot more in interest over time.

Let’s say you buy a new car at $34,600. That is the current average price people pay for a new car, according to At 5 percent interest, you’ll pay $4,576 in interest over five years. Add two years, you will pay $6,478 in interest; a difference of $1,902.

“Typically, if you’re stretching it to a seven or eight loan, you’re trying to get a more expensive vehicle that might be a vehicle you can’t afford,” says Stewart. “You might want to check your motives for that and see if that’s what you really need to do.”

Shara Jessop, president of Smedley Financial, is no fan either.

“I hate that they’re doing longer term loans,” says Jessop. “I think younger people get caught up in that early, and then it’s harder to get out.”

New car values typically drop 25 to 30 percent in the first year. You could owe more than your car is worth years after the new car smell fades.

“You’re paying on something where it’s no longer as exciting as it was when you first got it,” says Jessop. “Think about it. Over a few years, a car becomes a part of normal life. The excitement is gone. But, those long term loans, you’re still paying on them for a long time.”

You could lose thousands if you have to sell your car early or if it gets totaled in crash because you would be upside down in your loan, owing more than it is worth.

Both Jessop and Stewart say a much better alternative to buying a new car on a long term loan, is to buy one used.

“Many times you can buy a used car that’s a year or two old,” explains Stewart, “It’s already had a lot of the depreciation taken out of it. As long as it’s in great shape, a used car might be a great alternative.”

“Lease buy backs are great,” says Jessop. “They’ve been maintained and typically there’s low mileage.”

If you’re buying a new car, the general consensus from experts is to go in with a 20 percent down payment. Also, aim for a monthly payment that does not exceed 10 percent of your gross income.”

“Anything from three to five years is a good range for an auto loan,” says Stewart. “If you can’t afford the car you’re looking at in that range, well then, you should rethink that.”

“We’re all human. We all want something new,” Jessop says. “The trick is delayed gratification. Treat yourself right, financially, and make a good decision you won’t regret.”

Dealers often use lower monthly payments to sell people on higher-end models. Knowing the total loan amount and how much money you can spend beforehand, helps keep you out of a long term loan.

KSL 5 TV Live

Top Stories

Consumer File

Roe v Wade Utah...

Sunday Edition: Republican Primary Election Debates; Roe v. Wade impact in Utah; Drought Conditions outlook

Doug Wright sits down with Senator Dan McCay to discuss the Supreme Court leaked draft opinion on Roe v. Wade and about the so-called "trigger law" that would go into effect if Roe v. Wade is overturned.
2 months ago
Matt Gephardt and Sloan Schrage, KSL TV

GPS gadgets and other devices that can help parents keep tabs on their children

Moms and dads have all sorts of gadget options that can help their peace of mind while keeping tabs on their kids.
1 year ago
Dan Spindle, KSL TV

How to stream Utah college football games

Here's how you can still watch your favorite teams on the gridiron without the expensive satellite or cable package.
1 year ago
A US government agency issued an "urgent warning" for users of Peloton's Tread+ following multiple ...
Jordan Valinsky, CNN Business

Peloton Tread+ Owners Told To Stop Using Treadmill In ‘Urgent Warning’

A US government agency issued an "urgent warning" for users of Peloton's Tread+ following multiple dangerous incidents with the machine, including a child's death.
1 year ago
Matt Gephardt, KSL TV

Gephardt: Gas Company Resumes Disconnecting Delinquents, Vows To Help Customers

Dominion Energy decided in March to cease disconnecting those who didn't pay their gas bills, but that program only runs through mid-July.
2 years ago
Photo by Joe Raedle/Getty Images...
Dan Spindle, KSL TV

Utah Housing Market Good For Buyers & Sellers Despite Pandemic

Even considering the effects of COVID-19 on the economy, the laws of supply and demand were in full swing in Utah for the housing market.
2 years ago

Sponsored Articles

young woman with stickers on laptop computer...
Les Olson

7 ways print marketing materials can boost your business

Custom print marketing materials are a great way to leave an impression on clients or customers. Read for a few ideas to spread the word about your product or company.
young woman throwing clothes to organize a walk in closet...
Lighting Design

How to organize your walk-in closet | 7 easy tips to streamline your storage today

Read our tips to learn how to organize your walk-in closet for more storage space. These seven easy tips can help you get the most out of your space.
Types of Computer Malware and Examples...
PC Laptops

5 Nasty Types of Computer Malware and Examples | Everything You Need to Know to Keep Your Computer and Family Safe

Here are the different types of computer malware and examples that could potentially infect your computer.
tips how to quit smoking...

7 Tips How to Quit Smoking | Quitting Smoking Might be One of the Hardest Things You Ever Do but Here’s Where You Can Start

Quitting smoking cigarettes can be incredibly difficult. Here are 7 tips how to quit smoking to help you on your quitting journey.
Photo: Storyblocks...
Blue Stakes of Utah 811

Blue Stakes of Utah 811: 5 Reasons To Call 811 Before You Dig When Working in Your Yard

Call before you dig. Even at home, you could end up with serious injuries or broken utilities just because you didn't call Blue Stakes of Utah 811.
Days of...
Days of '47 Rodeo

TRIVIA: How well do you know your rodeo? Take this quiz before you go to the Days of ’47!

The Utah Days of ’47 Rodeo presented by Zions Bank is a one-of-a-kind Gold Medal Rodeo being held July 20-23, 25 at 7:30 PM. The Days of ’47 Rodeo How well do you know your rodeo trivia? Take the quiz to test your know-all before heading out to the Days of ’47 Rodeo at the […]
Experts warn about pitfalls of long-term auto loans