By Chris Taylor

NEW YORK (Reuters) - Consumers facing high asset prices and rising interest rates have a few loan options. None are particularly attractive.

Buyers of homes or new cars might be better off waiting. But if you must go ahead, either face taking on a big monthly payment, or stretching out the loan term to keep the monthly bill down - as many are doing.

New car loans lasting 73-84 months (over six years) rose to 34.4% of the market in 2022 from 28.6% in 2018, according to auto information site Edmunds. A few borrowers are going even longer, with less than 1% of new car loans lasting 85 months or more.

"It's a reflection of the world we live in: Transportation affordability is a significant problem, as is housing," said Ira Rheingold, executive director of the National Association of Consumer Advocates.

"More and more dealers are offering extended loan terms: Instead of three or four or five years, they are now going way beyond that," Rheingold added. "It's the same thing with housing: Sometimes the only way to get someone into a house is to increase the mortgage length."

Ultra-long loan terms are showing up in the housing market.

Homeowners straining to pay their Federal Housing Administration (FHA) mortgages can now apply to have their loans extended to 40 years to reduce monthly payments.

For personal loans closed through the LendingTree platform, the median term in May rose to 60 months from 57 months in April, and 54 months in March.

Stretching out a loan is not always a bad idea. It can be a solid foundation for family wealth if fixed at a low rate for an asset that appreciates over time such as a 30-year mortgage.

One principle applies, no matter what the asset, Rheingold advised. "Be very wary of extending the life of your loan, just to make it affordable in the short-term."

Here are few tips from financial experts:

DO THE MATH

A lower monthly payment may seem attractive now, but a longer term loan will end up costing more in interest, likely at a higher rate to compensate the lender for additional risk. That is why such loans appeal to banks, but less to borrowers.

"Buyers should be very wary of taking lenders up on those offers," said financial planner Eric Scruggs of Stoneham, Massachusetts.

For example, a $35,000 car, with a five-year loan at 3% interest, would have a total of $37,734 in payments, he said. That same car financed over seven years at 5% would cost $41,554 – $3,820 more.

MAKE SOME HARD DECISIONS

If you must keep pushing out the loan term to afford an asset, that may be a signal to get real.

"If you have to stretch out to a seven-year loan to buy a car, perhaps you should buy a less expensive car," said Brandon Gibson, a Dallas financial planner.

BEWARE OF SLIDING ‘UNDERWATER’

Extending loans further into the future means increasing the amount of time you could be "underwater," or owe more than the asset is worth. That certainly happens with cars, but also with homes in eras of declining prices, as during the subprime mortgage crisis of 2007 to 2008.

"This situation triggers a host of issues," said Erin Witte, director of consumer protection for the Consumer Federation of America. "Being underwater can make it very difficult to trade in a car in future when you need a new one.

"Consumers are faced with the situation of 'negative equity,' where they still owe money on the car they want to trade in and end up rolling that debt into the finance contract on the new car," Witte added. "Unfortunately, that means the consumer is now paying interest on that debt twice."