Consumer Reports: What you need know about car loans

NEW YORK (WABC) -- Car sales are up, and Americans now have one trillion dollars in outstanding car loans and leases. Consumer Reports looked at how to make wise choices when it's time to buy and finance your next car.

Jannetta MacArthur bought a Volkswagen Jetta and went for a seven-year loan to keep her payments low.

"Financially, I didn't know if I could handle having the 48 months or the 60-month payment," she said. "So I chose the 84."

Last year, about 29 percent of new cars were financed with an extended-length loan lasting longer than 72 months.

"Going with an extended-length loan is rarely a good idea," Consumer Reports deputy auto editor Jon Linkov said. "You'll likely be charged a higher interest rate, and you'll end up paying more for the car over the life of the loan."

If Janetta were to buy her Volkswagen Jetta today, here's how the numbers add up.

With a 48-month loan, Consumer Reports found financing of 1.99 percent. The total amount she'll pay in interest over the loan is about $700. With a 72-month loan with financing at 2.49 percent, her total interest would be more than $1,300. An 84-month loan would be even higher.

And another problem with Janetta's loan is that her car will be worth less than what she will owe.

"With an extended-length loan, you'll spend extra time in this upside-down situation," Linkov said. "And if you have to trade in or sell the car, you won't get enough money to pay off the loan."

And if it's totaled in an accident, the check from your insurance company may not be enough to replace your current vehicle.

You should also consider where you'll get your loan. More than 70 percent of car loans are financed at the dealership, but take your time to shop around.

"Local banks, credit unions, and online banks may be able to offer you a more competitive loan and a lower interest rate," Linkov said.

So the key to getting the best deal on a car loan is to put as much time into researching your loan as you do your new car. Whatever the loan, Consumer reports recommends putting a down payment on the car that is as much as you can comfortably afford, aiming for at least 15 percent of the total cost of the car.