What’s the best auto loan strategy?

With auto loan terms for new cars reaching a historic industry average high of 68 months, consumers are being tempted by longer and longer terms. Consider the points below before taking out your next loan.

Avoid going “underwater”

For the first few years, you’ll be paying mostly interest, which could make your payoff amount (say you want to trade it in after 36 months into the loan) higher than the car’s current value.

Stick to 60 months or less, especially on used cars

“If you bought a three-year-old car, and took out an 84-month loan, it would be 10 years old when the loan was finally paid off ,” warns NerdWallet’s Philip Reed.

Avoid the temptation to lower monthly payments

Long-term loans equal higher interest.

Make a large down payment to prepay the depreciation

If you decide to take out a lengthy loan, try to make a large down payment. This will allow you to purchase a new vehicle without having to roll the negative equity into your next loan, which might not be allowed depending on your lender or credit score.