{"id":46220,"date":"2022-09-12T09:28:24","date_gmt":"2022-09-12T09:28:24","guid":{"rendered":" https:\/\/dev.way.com\/blog\/?p=46220"},"modified":"2022-09-13T05:05:25","modified_gmt":"2022-09-13T05:05:25","slug":"average-car-loan-length","status":"publish","type":"post","link":"https:\/\/dev.way.com\/journal\/average-car-loan-length\/","title":{"rendered":"Average Car Loan Length in a Nutshell"},"content":{"rendered":"

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.\u00a0<\/em>\u00a0<\/span><\/p>\n

What is the current average car loan length?<\/span>\u00a0<\/span><\/h2>\n

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.<\/span>\u00a0<\/span><\/p>\n

\"Average<\/p>\n

Why do people prefer longer car loans?<\/span>\u00a0<\/span><\/h2>\n

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.<\/span>\u00a0<\/span><\/p>\n

Lower monthly payments<\/span>\u00a0<\/span><\/h3>\n

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 \u2014 a difference of around $140 each month. <\/span>\u00a0<\/span><\/p>\n

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.<\/span>\u00a0<\/span><\/p>\n

\u00a0Freed up funds<\/span>\u00a0<\/span><\/h3>\n

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.<\/span>\u00a0<\/span><\/p>\n

Average car loan length statistics<\/span>\u00a0<\/span><\/h2>\n

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.<\/span>\u00a0<\/span><\/p>\n

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.<\/span>\u00a0<\/span><\/p>\n

Average new-car loan repayment term in months: By credit score tier<\/span>\u00a0<\/span><\/h3>\n\n\n\n\n\n\n\n\n
Credit Score Tier<\/span>\u00a0<\/span><\/td>\nAverage Loan Term (Months)
\nQ2 2020<\/span>\u00a0<\/span><\/td>\n		Average Loan Term (Months)
\nQ2 2019<\/span>\u00a0<\/span><\/td>\n		% Change<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Super prime
\n(781 – 850)<\/span>\u00a0<\/span><\/td>\n		66.88<\/span>\u00a0<\/span><\/td>\n63.17<\/span>\u00a0<\/span><\/td>\n5.9%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Prime
\n(661 – 780)<\/span>\u00a0<\/span><\/td>\n		73.04<\/span>\u00a0<\/span><\/td>\n70.47<\/span>\u00a0<\/span><\/td>\n3.6%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Nonprime
\n(601 – 660)<\/span>\u00a0<\/span><\/td>\n		74.28<\/span>\u00a0<\/span><\/td>\n73.21<\/span>\u00a0<\/span><\/td>\n1.5%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Subprime
\n(501 – 600)<\/span>\u00a0<\/span><\/td>\n		73.30<\/span>\u00a0<\/span><\/td>\n72.90<\/span>\u00a0<\/span><\/td>\n0.5%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Deep subprime
\n(300 – 500)<\/span>\u00a0<\/span><\/td>\n		72.46<\/span>\u00a0<\/span><\/td>\n72.34<\/span>\u00a0<\/span><\/td>\n0.2%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: Experian<\/a><\/em><\/p>\n

Average used-car loan repayment term in months: By credit score tier<\/span>\u00a0<\/span><\/h3>\n\n\n\n\n\n\n\n\n
Credit Score Tier<\/span>\u00a0<\/span><\/td>\nAverage Loan Term (Months)
\nQ2 2020<\/span>\u00a0<\/span><\/td>\n		Average Loan Term (Months)
\nQ2 2019<\/span>\u00a0<\/span><\/td>\n		% Change<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Super prime
\n(781 – 850)<\/span>\u00a0<\/span><\/td>\n		63.36<\/span>\u00a0<\/span><\/td>\n62.44<\/span>\u00a0<\/span><\/td>\n1.5%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Prime
\n(661 – 780)<\/span>\u00a0<\/span><\/td>\n		67.05<\/span>\u00a0<\/span><\/td>\n66.34<\/span>\u00a0<\/span><\/td>\n1.1%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Nonprime
\n(601 – 660)<\/span>\u00a0<\/span><\/td>\n		66.01<\/span>\u00a0<\/span><\/td>\n65.79<\/span>\u00a0<\/span><\/td>\n0.3%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Subprime
\n(501 – 600)<\/span>\u00a0<\/span><\/td>\n		62.64<\/span>\u00a0<\/span><\/td>\n62.88<\/span>\u00a0<\/span><\/td>\n-0.4%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
Deep subprime
\n(300 – 500)<\/span>\u00a0<\/span><\/td>\n		59.19<\/span>\u00a0<\/span><\/td>\n60.45<\/span>\u00a0<\/span><\/td>\n-2.1%<\/span>\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: Experian<\/a><\/em><\/p>\n

Short and Long term car loans: A comparison<\/span>\u00a0<\/span><\/h2>\n

New car borrowers vs. used car borrowers who opted for short-term car loans: By credit score<\/span>\u00a0<\/span><\/h3>\n\n\n\n\n\n\n
Average credit score in Q1<\/span>\u00a0<\/span><\/td>\nShort-term new car loan borrowers (1\u201348 months)<\/span>\u00a0<\/span><\/td>\nShort-term used car loan borrowers (1\u201348 months)<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
2022<\/span>\u00a0<\/span><\/td>\n 778<\/span>\u00a0<\/span><\/td>\n671<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
2021<\/span>\u00a0<\/span><\/td>\n783<\/span>\u00a0<\/span><\/td>\n 672<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
2020<\/span>\u00a0<\/span><\/td>\n781<\/span>\u00a0<\/span><\/td>\n666<\/span>\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: Experian<\/a><\/em><\/p>\n

Borrowers vs. used car borrowers <\/span>who opted for long-term car loans<\/span>: By credit score<\/span>\u00a0<\/span><\/h3>\n\n\n\n\n\n\n
Average credit score in Q1<\/span>\u00a0<\/span><\/td>\nLong-term new car loan borrowers (85+ months)<\/span>\u00a0<\/span><\/td>\nLong-term used car loan borrowers (85+ months)<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
2022<\/span>\u00a0<\/span><\/td>\n715<\/span>\u00a0<\/span><\/td>\n711<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
2021<\/span>\u00a0<\/span><\/td>\n717<\/span>\u00a0<\/span><\/td>\n715<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
2020<\/span>\u00a0<\/span><\/td>\n713<\/span>\u00a0<\/span><\/td>\n709<\/span>\u00a0<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source: Experian<\/a><\/em><\/p>\n

\u00a0<\/span>Short vs. Long-term car loans \u2013 Pros and Cons<\/span>\u00a0<\/span><\/h3>\n\n\n\n\n\n
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Short-term car loans\u00a0<\/strong><\/p>\n<\/td>\n<\/tr>\n

Pros\u00a0<\/span>\u00a0<\/span><\/td>\nCons\u00a0<\/span>\u00a0<\/span><\/td>\n<\/tr>\n
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    \n
  • A loan amortization schedule may include no more than 48 monthly payments.\u00a0<\/span>\u00a0<\/span><\/li>\n
  • Offers lower interest rates than long-term auto finance.<\/span><\/li>\n
  • Helps individuals establish credit.<\/span><\/li>\n<\/ul>\n<\/td>\n
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