Car loans, like any other type of loan, have a set repayment duration. The ideal car loan length for your circumstances will be influenced by a variety of factors, but it frequently comes down to striking the right balance between a lower interest rate and overall affordability. This can heavily impact your finances. Before committing to any auto loan, it’s advised to do some research and learn about the average car loan length.
What is the current average car loan length?
The most common car loan length for both new and used cars is presently 72 months. The average car loan length varies, but 72 months is slightly longer than in decades past. The popularity of the 72-month term appears to be increasing, and the reason for this is likely because it is simpler to finance than a 60-month loan due to the spread out of payments. However, 84-month loans may become more prevalent in the future as the reduced monthly payments appear more appealing to buyers.
Why do people prefer longer car loans?
Individuals with bad credit have longer loan terms on new car loans than those with good or excellent credit. The typical new-car loan duration for people with credit scores ranging from 781 to 850 is roughly 65 months. The average loan period for those with credit ratings of 500 or lower is slightly over 72 months.
Lower monthly payments
A lower monthly loan payment is the main benefit of a longer loan term. Assume you’re financing a $30,000 new automobile over five years at a 3% APR, with no down payment in a state where there is no sales tax. Each of your monthly payments would be around $540. If you choose a seven-year loan with the same other loan parameters, your monthly payments would be around $400 — a difference of around $140 each month.
However, keep in mind that a longer-term loan requires larger payments. In this case, you’d make 84 monthly payments on the seven-year loan instead of 60 payments on the five-year loan. The longer loan will also cost you more in interest over time.
Freed up funds
Assume you’re picking between a 60-month and an 84-month car loan. The lower the monthly payment associated with, the longer loan term may free up funds to pay down other high-interest debt more rapidly. However, this only makes sense if the interest rate on your debt is much greater than your car loan. On the longer-term loans, you’d be able to pay off your higher-interest credit card debt in less time, potentially saving you more interest in the long run.
Average car loan length statistics
When new-car buyers were put into groups based on their credit scores, the average loan terms for all groups went up over the last three years. And for the first time ever, the average loan term was longer than 72 months for everyone except “super prime” borrowers with credit scores between 781 and 850.
In the case of used-car loan terms, when compared by credit score tier, those with higher scores (super prime, prime, and nonprime) had slightly longer terms than those with lower scores (lower subprime and deep subprime). Conversely, those with lower scores (lower subprime and deep subprime) had shorter terms.
Average new-car loan repayment term in months: By credit score tier
| Credit Score Tier | Average Loan Term (Months) Q2 2020 |
Average Loan Term (Months) Q2 2019 |
% Change |
| Super prime (781 – 850) |
66.88 | 63.17 | 5.9% |
| Prime (661 – 780) |
73.04 | 70.47 | 3.6% |
| Nonprime (601 – 660) |
74.28 | 73.21 | 1.5% |
| Subprime (501 – 600) |
73.30 | 72.90 | 0.5% |
| Deep subprime (300 – 500) |
72.46 | 72.34 | 0.2% |
Source: Experian
Average used-car loan repayment term in months: By credit score tier
| Credit Score Tier | Average Loan Term (Months) Q2 2020 |
Average Loan Term (Months) Q2 2019 |
% Change |
| Super prime (781 – 850) |
63.36 | 62.44 | 1.5% |
| Prime (661 – 780) |
67.05 | 66.34 | 1.1% |
| Nonprime (601 – 660) |
66.01 | 65.79 | 0.3% |
| Subprime (501 – 600) |
62.64 | 62.88 | -0.4% |
| Deep subprime (300 – 500) |
59.19 | 60.45 | -2.1% |
Source: Experian
Short and Long term car loans: A comparison
New car borrowers vs. used car borrowers who opted for short-term car loans: By credit score
| Average credit score in Q1 | Short-term new car loan borrowers (1–48 months) | Short-term used car loan borrowers (1–48 months) |
| 2022 | 778 | 671 |
| 2021 | 783 | 672 |
| 2020 | 781 | 666 |
Source: Experian
Borrowers vs. used car borrowers who opted for long-term car loans: By credit score
| Average credit score in Q1 | Long-term new car loan borrowers (85+ months) | Long-term used car loan borrowers (85+ months) |
| 2022 | 715 | 711 |
| 2021 | 717 | 715 |
| 2020 | 713 | 709 |
Source: Experian
Short vs. Long-term car loans – Pros and Cons
|
Short-term car loans |
|
| Pros | Cons |
|
|
|
Long-term car loans |
|
| Pros | Cons |
|
|
What is the average term length for a new lease?
According to Experian, the average term for a new car lease in the first quarter of 2022 is 36.41 months. When deciding between leasing and buying a car, you may weigh the advantages and disadvantages of auto lease finance.
How to strategize better car loan payments
Use low APR loans to increase cash flow for investing
The only time to take out a long-term loan is when the APR is really low. For instance, Toyota has given 0.9% 72-month loans on select vehicles. Instead of tying up your funds with a hefty down payment and high monthly payments on a 60-month loan, use the money you save for other investments that could provide a larger return.
Refinance your bad loan
Nothing is lost if your emotions take over and you sign a 72-month loan on that sports coupe. Assuming you have acceptable credit, you may be able to refinance your auto loan without incurring any fees or penalties for prepayment.
Make a large down payment to prepay the depreciation
Putting a substantial down payment might prevent falling underwater if you opt to take on a lengthy loan. If you do so, you can trade in the vehicle without being required to roll negative equity into the next loan.
Lease instead of buy
If you desire that sports coupe but cannot afford to purchase it, you may likely lease it for less money upfront and lower monthly payments. Weintraub recommends this option to their clients, especially since there are so many excellent leasing bargains. Then, if you still desire the automobile at the end of the lease, you have the option to purchase it at the residual value mentioned in the contract.
Alternatives to long loans
Suppose you want to buy a new car but are unable to afford the monthly payments for a conventional five-year loan. That may indicate that you are purchasing beyond your budget. In this scenario, you might want to use an auto loan calculator to understand how much you can afford.
You might also consider purchasing a used car. Used automobiles have higher interest rates, but since they cost less. This means there is less to borrow, and monthly payments should be lower.
Keep in mind that the used car market in 2022 is extremely overpriced, and it is difficult to get a fair deal. We advise you to thoroughly go through the loan terms before committing to one.
How to choose the right auto loan term for you
When pondering an auto loan, it’s important to know how the loan term affects the balance between the monthly payment and the total cost. You should also figure out how much you can really afford and whether the “savings” you’ll get from lower monthly payments are worth the interest charges you’ll have to pay in the long run.
Both long and short loan terms have their pros and cons, and you’ll have to weigh them against each other to decide which is best for you. However, when trying to figure out how long your loan should be, you should keep in mind that:
- Longer loan terms mean lower monthly payments and better affordability. But they cost more in the long run and make it more likely that you’ll fall behind on your payments.
- Short loan terms mean you have to pay more each month, but you end up paying less interest and taking less risk.
- Most of the time, you should get a loan with the shortest term you can handle. To determine where that fits in terms of 36-, 48-, 60-, 72-, or 84-month loans, you’ll need to look at your income, savings, and the car you want to buy.
How refinancing can change the length of a car loan
Refinancing your auto loan is a possibility if your loan becomes unmanageable, you want to pay it off early, or you want to save money with a reduced interest rate. When refinancing a debt, you obtain a new loan to pay off the old one. Your new loan could provide you with better conditions or a lower interest rate.
To reduce your monthly payments, you could extend the period of your loan when you refinance, for instance. Ideally, you would also be able to obtain a new loan with a reduced interest rate, which might save you money over time.
Consider refinancing if your income, credit score, or debt-to-income ratio improves. These criteria are utilized by lenders when determining whether to extend a loan.
If you find a better offer than the one you signed up for initially, it may be worthwhile to consider refinancing. In addition, if you opt to reduce your loan’s duration, refinancing could also help you pay off your auto loan faster.
Refinancing can be more difficult if you have terrible credit, but it’s typically still possible to locate lenders prepared to provide you with a better deal. In addition, you can consider consulting refinance aggregators like Way.com to get the best refinance available for you.
Bottomline
A longer-term may make your vehicle loan payments more reasonable in the short term, but you will pay more in interest throughout the loan. On the other hand, if your term is sufficiently long, your loan could become upside down, meaning you owe more than your vehicle is worth.
Consider how a longer term might fit into your entire financial plan and whether there are other options to make your auto loan more manageable prior to making a purchase.
Here’s more info on top-rated airport parking, the best parking spots in your city, the most affordable auto insurance for your car, easy auto refinance, and top-rated car washes near you.
Get 10% off in the Way App in the Way App!
- Scan and get the Way App Download the Way App
- Log in to your account
- Use code FIRST10 at checkout
