What’s the Maximum Amount of Time You Can Finance a Truck?

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If you are interested in financing a truck, then you may be curious as to what truck loan terms you can take advantage of. Furthermore, some people may opt for longer terms, as they may feel that such terms will give them ample time to pay off the loan. However, in reality, long loan terms will come with higher interest. In fact, some terms can be so poor that you may end up paying more in interest than the value of the truck itself. Here, we will look at the maximum amount of time you can finance a truck and why long-term loans are not recommended.

What’s the Maximum Amount of Time You Can Finance a Truck?

The Perils of Negative Equity

If you decide to visit your local truck dealer in order to discuss truck financing, they may try and offer you a 72 to 84 month truck loan extension in order to help you finance your truck. They may even tell you that your monthly payments would be lower and that the down payment amount would be the same as well.

However, more often than not, long-term loans will actually set you up for a vicious cycle of negative equity, and you may actually be better off refinancing your truck loan in many instances. As such, longer term truck loans may actually lead to lost funds as well as financial instability down the road, as we shall see below.

Higher Interest Rates

Truck loans that exceed the 60-month mark are generally not recommended, as they usually carry higher interest rates. However, despite this fact, nearly 40% of new-vehicle buyers took out loans of 61 to 72 months during the first quarter of 2019, according to a report published by Experian. This may be due in part to dealers trying to make payments more palatable for their customers by extending loans instead of lowering the actual price of the vehicle.

However, what many dealers fail to tell their clients is how extending the loan terms will lead to potential financial issues down the line, or how extending the loan terms will negatively impact the interest rates on the vehicle.

Furthermore, many used vehicle purchasers also take the longer term option, with 42.1% of used vehicle buyers opting for loans between 61 and 72 months, and with 20% opting for even longer loan terms (e.g. 73–84 months).

To further illustrate the perils of long-term loans, imagine you purchased a truck that is three years old and that you took out an 84-month loan for the truck, which amounts to seven years. In such a scenario, the truck would be ten years old by the time it has been fully paid off.

As such, you would be spending a large amount of your hard earned money paying off a very used truck that will likely require several additional thousands of dollars for repair, maintenance, and upgrades. Thus, just because you qualify for a long-term loan, it doesn’t necessarily mean that you should accept them, as your focus should be on the overall cost of the truck and not the monthly payments that you will need to make.

You are Upside Down Immediately

Here, we are referring to being underwater as soon as you sign the papers, as you will end up owing your lender more money than the actual value of the truck that you just financed. Ergo, the best plan would be to try and obtain the shortest loan term possible, assuming you are in a stable enough financial situation to pay it off without much difficulty.

A shorter loan term will automatically equate to accelerated equity accumulation in your truck, which will also help augment its resale value. For example, having built-up equity in your truck will allow you to sell it if needed in order to gain some quick funds. You can also trade it in if desired, provided you have sufficient equity, so building equity as soon as possible should be a top priority.

The Negative Equity Cycle

Imagine a scenario where you will need to trade in the truck before an 84-month loan is paid off. In such a scenario, even after giving you some credit for the cash value of the trade-in, you will still likely owe quite a substantial amount, which can run in the thousands.

In fact, your dealer will likely try and find a way to bury the thousands that you still owe into the next loan, and so on and so forth, perpetuating a dreadful equity cycle. In other words, with each subsequent loan, the loan amount will become larger and your debts will also increase.

Breaching the 60-Month Mark Has Consequences

As previously mentioned, we would not recommend that you take out a truck loan that exceeds the 60-month mark. This is because loans that extend beyond the 60-month mark usually come with elevated interest rates.

Data also seems to indicate that people who take on longer loan terms tend to borrow more money, which would indicate that they have invested in a more expensive vehicle. This would suggest that they have either paid more for the same vehicle or have opted for extras such as warranties or other related truck products.

How to Turn the Tables on Extended Loans

If you are concerned about extended loan terms, then you may want to lease your truck instead of buying it. You can also prepay the depreciation on your truck by putting down a bigger down payment amount, and you may want to look into refinancing your truck loan if the terms were poor when you signed the papers. Assuming your credit is good, you may be able to refinance the terms of your loan while also not having to deal with early payment fees or penalties.

Truck Loan Center

If you would like to learn more about how to finance a truck or how long you can take out a truck loan, then please visit our website. We can also be reached at 1-866-230-0094 to learn more about our straight truck loans and heavy equipment financing options and terms.


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