Typical Car Loan Lengths
Car loans are typically granted for 36 to 84 months in total, though some may be shorter or longer, and some lenders offer lengths that are completely outside of the typical range.
So, how long are car loans?
A car loan’s term is the length of the loan. The most common car loan terms are:
- 36 months (three years)
- 48 months (four years)
- 60 months (five years)
- 72 months (six years)
- 84 months (seven years)
You will have more time to repay the loan if the term is longer. But it will also allow interest to accrue over a longer period of time.
What is the Average Car Loan Length?
Currently, 72 months is the most typical loan duration for both new and used cars. A car loan’s typical duration varies from time to time, but 72 months is a little longer than it was in earlier decades.
Because the payments are spread out over a longer period of time, the 72-month term is becoming more and more common. This is probably because it is less expensive than a 60-month loan. Having said that, it’s feasible that 84-month loans will gain popularity in the future as purchasers find the smaller monthly payments to be more alluring.
Is a 72 Month Car Loan Bad? The Advantages Of Long Car Loan Lengths
Longer terms are preferred by car buyers, whether they are purchasing a new or used vehicle, due to the benefits they offer. Some of those advantages are included below:
The individual loan payments will be lower than they would be with a short-term auto loan because the entire loan amount is disbursed over a longer period of time. That can make purchasing a car more affordable, which is one of the reasons why so many people find long-term loans appealing.
Easy way to build credit
A longer loan term can be an affordable option for those who want to establish credit while still making their monthly payments. Although there are other ways to build credit, the reduced monthly payments can be helpful.
Afford a better car
It is feasible to buy a better, more expensive car with smaller payments than you could with a short-term loan.
Drawbacks Of Long Car Loan Lengths
Long-term loans have benefits, but there are also some disadvantages to consider.
- Long-term loans typically have higher interest rates overall because they give interest more time to accrue.
- If you choose a longer term, your car will probably lose value before you can pay it off, and you might end up paying more than it is worth.
- There are more chances for loan default, which could lead to the seizure of your car.
In light of these possible drawbacks, a longer loan term is typically not regarded as optimal.
Advantages Of Short-Term Auto Loans
Long-term auto loans are common and have a number of advantages, but they also have disadvantages. Short-term auto loans’ advantages enable avoiding those drawbacks.
The fact that you’ll pay less interest at the end of a short car loan term is its primary advantage. Short loan terms not only often offer lower interest rates, but they also give interest to accrue over a shorter period of time. Once your car is paid off, you may save thousands of dollars overall.
A shorter auto loan term carries a significantly lower risk for a number of reasons.
For example, because cars lose value over time, you’ll be less likely to have a loan where you’re underwater, or owe more than the car is worth. This implies that you will be less likely to be held accountable for loan payments that exceed the value of the vehicle if you need to sell the car or collect on an insurance policy.
Get out of debt sooner
The ability to pay off debt earlier than you would with a longer loan term is the ultimate advantage. You won’t have to worry about making monthly payments on your car, allowing you to drive it for longer.
One of the most frequent problems with buying a new car is that many owners feel the need to replace their vehicle after a few years. If you choose to take out six-year loans and buy a new car every six years, you will have to make payments all the time. A shorter term will give you more breathing room between purchases.
Drawbacks Of Short-Term Auto Loans
While it’s generally preferable to take out a loan for the shortest term possible in order to save money on interest, there are situations when a slightly longer term is the only affordable choice.
When looking for a car loan, it’s important to take into account the disadvantages of short loan terms, which include:
- Because short loans have larger monthly payments, they could be more difficult to afford.
- To maintain affordable monthly payments, you might have to put down a bigger sum of money.
- It’s possible that you can’t afford the car of your dreams.
Choosing The Right Loan Term For You
Evaluating the benefits and drawbacks of both long and short loan terms is necessary to determine which length is best for your circumstances.
When deciding on the appropriate term for your loan, keep the following in mind:
- Longer loan terms increase the risk of going underwater on the loan and result in higher final costs despite having lower monthly payments and improved affordability.
- Although shorter loan terms have higher monthly payments, they are ultimately less risky and cost less in interest.
Generally speaking, you should obtain the shortest loan term possible. Looking at your income, savings, and the car you want to buy will help you determine where that lands in terms of 36, 48, 60, 72, or 84-month loans.
FAQ
Is it smart to do a 72 month car loan?
As a result of the high interest rates and potential for default, most experts concur that a 72-month loan is not the best option. Experts recommend that borrowers take out a shorter loan. Additionally, a loan term shorter than 60 months is preferable for the best interest rate. You can learn more about car loans here.
What is a good length for a car loan?
A car loan can be a serious commitment. Depending on how long your loan is, you might have to make monthly payments for years to come. As of July 2023, the average term for a new or used car loan is between 67 and 69 months, or roughly five and six years, according to information services provider Experian.
How long does it take to pay off a $30000 car?
If the initial payment is $5,000, the interest rate is 10%, and the loan term is five years, the monthly payment will be $531. 18/month. Your monthly payment will be $768 with a $1,000 down payment and an interest rate of 2020 percent with a five-year loan. 32/month.
Is 5 years too long for a car loan?
The longer your loan term, which is normally between two and seven years, or 24 to 84 months, the lower your monthly payments will be. But keep in mind that a smaller monthly payment has disadvantages, such as possibly increasing your overall costs. Most drivers should avoid taking out a long-term auto loan.
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https://www.gtfcu.org/articles/how-long-are-auto-loan-understanding-car-loan-length