Odds are – if you’ve learned about 144 month auto loans then you’re inquiring about buying that high-line or exotic car you’ve always wanted. In some cases, the 144 month auto loan can be a good way to get a taste of the dream car. In other cases, it’s simply a means to lose a lot on depreciation and interest. Whatever you decide, don’t forget you can refinance your auto loan at any given time.
Best Providers for 144 month auto loans
There are more limited options for 144 month loan than more standard terms (84 month is the longest duration standard loan term).
The normal providers are:
- Rates: 6.99% and up for 144 month terms.
- Eligible Cars: Late model exotic and classic cars
- Ineligible: Porsche Boxster, and high volume production cars
- Rates: Unpublished, but terms up to 120 months
- Eligible Cars: Late and classic model exotic cars
- Ineligible: High volume production cars
When to consider a 144 month loan
For most – a 144 month loan doesn’t make sense on a depreciating car. But in a few cases it can make the difference for a savvy speculator. Here’s some circumstances where me might recommend:
(1) Leveraged Speculation:
Much like homes and private equity leverage, there is a subset of highline exotics and classic cars which appreciate. If you’re an ultra-savvy and know the market well then putting all of your cash into the asset isn’t always a good idea (like home-purchasing), and providing some leverage can help you get higher returns on these investments.
Let’s take the case of a Ferrari LaFerrari. A saavy investor could reasonably assume that all late model Ferrari hypercar limited editions go up in value. But without the required $1.2M in initial capital, it might seem initially prohbitive.
So with $100k downpayment, ownership period of 24 months, and 144 month terms let’s look at the investment returns. Over 24 months and with a 6.99% interest you would’ve paid $222,024 in total payments in addition to the downpayment. So you’d have a total investment of $322,024. Today, that same LaFerrari sells for approximately $4.7 Million according to a recent auction.
So in net under financing:
- $322,024 Net Investment
- $4.7M Return
- 14.5X Return on Cash Investment
Vs Paying Cash
- $1.2M Net Investment
- $4.7M Return
- 3.91X Return on Cash Investment
Obviously, the cash buyer would’ve been much better off buying 10 LaFerrari’s had he received the allocation.
(2) High confidence in other asset appreciation
As we’ve written before – for good credit customers its not always a good idea to pay cash given the low interest of auto loans. In many cases, safe assets can still out-earn the auto loan rates.
The problem with 144 month loan terms however are that loan rates often end up higher due to the riskier term length (the longer the loan term the more uncertainty over interest rates).
So with a 6.99% interest rate at the lowest, you’ll invariably have to be a much better investor or more comfortable with more risk to feel you can out-invest those returns over a 144 month period.
(3) Scratching that irrational emotional itch for a time:
Sometimes – you’ve had an irrational childhood dream for a long time (the car pictured below is mine). And life circumstances (children, marriage, sense of responsibility) often don’t align with income streams given that most of income typically comes later in life.
If you’ve merely got to “scratch an itch” – owning an exotic for a short period of time isn’t always as prohibitively expensive as people think. Since some cars rarely depreciate (see Hagerty’s Price Chart) then rather than pay for depreciation you’ve shifted expenses to financing charges and maintenance.
Reasons Not to get a 144 month auto loan
That being said there are a HUGE number of reasons NOT to get this long term loan.
- Interest rates are abnormally high (6.99% at the minimum)
- There’s no certainty to whether a car will or won’t depreciate (and very few individual other than seasoned collectors have an understanding of which cars should and shouldn’t be included)
- A single vehicle accident or mishap could cause “leveraged depreciation” where you’ll be perpetually owing more on the vehicle than its worth.
But the biggest concern of all is that you’ll be tempted to buy a car that has both high depreciation, high maintenance, and under the premise that you can afford it when you can’t. Had you financed a McLaren 12C in 2012 for example, you’d still owe roughly $200k on a vehicle worth $130k today.