With the average price of a new car hovering around $50,000, a radical and risky form of financing is emerging: the 100-month auto loan. Promising lower monthly repayments, these near-decade-long commitments are appearing on lender websites, but experts are sounding the alarm, calling the arrangement "madness" for most consumers.
The High Cost of 'Affordable' Monthly Payments
The fundamental trade-off with any long-term loan is starkly exaggerated over 100 months. While the monthly outlay drops, the total interest paid skyrockets. Eric Croak, president of Ohio-based Croak Capital, didn't mince words when speaking to The Independent. "I don't think it's necessary to sugarcoat," he said. "Eight years and four months of debt in exchange for something that you will likely lose 20% of value on before you get to change the oil for the second time is just madness."
The numbers are compelling. For a $50,000 loan to a borrower with good credit, a 48-month term at 5.89% would mean monthly payments of $1,171.73, with total interest of $6,243.11. In contrast, a 100-month loan at 9.39% offers a much lower monthly payment of $722.74, but the total interest balloons to a staggering $22,273.85.
"While lower monthly payments may sound attractive, consumers frequently miss is the substantial increase in the total cost to purchase," explained Michael A. Klitzke, CEO of the California-based Auto Law Firm. "At 100 months, the total cost is likely to be more than double the price of the vehicle."
The Peril of Being 'Underwater' for Years
A critical danger with such extended loans is the high probability of becoming 'underwater'—owing more on the loan than the car is worth. This is due to the car's rapid depreciation combined with the slow repayment of the principal loan amount.
David Johnson, CEO of lending servicer Vervent, highlighted the risk. "Lower monthly payments come at the cost of paying interest for years longer, and you typically stay 'underwater' for a meaningful portion of the loan," he stated. "That increases risk if life happens – job loss, accident, major repair, or the need to sell or trade before the loan catches up."
This situation becomes financially disastrous if the car is totalled. The owner would be left continuing payments on a loan balance that exceeds the insurance payout for the destroyed vehicle.
Exploring Smarter Financial Alternatives
Faced with high prices, what should a buyer do if a 100-month loan seems like the only path to an affordable payment? Experts suggest a fundamental shift in perspective. Ashley Morgan, attorney and owner of Ashley F. Morgan Law in Virginia, noted, "Unfortunately, when someone thinks a 100-month loan is their only option, you typically need to either have more income or buy a cheaper car."
The consensus is to opt for a shorter loan on a more modest vehicle. A substantial down payment can also help secure manageable payments on a 60 or 72-month term. David Johnson advised, "Consider a shorter-term path: A modest car now with a 48-72 month loan can be a bridge to a better purchase later, rather than locking in a decade of payments today."
Lenders like LOC Credit Union and Americo Federal Credit Union may offer these century-long terms, but the message from financial advisors is clear: the long-term financial damage far outweighs the short-term relief of a smaller monthly bill.
