Like any other loan, car loans have a certain length or period of time in which you can pay it back. The right car loan length for your situation will depend on a few factors, and often, it will come down to balancing a lower amount of interest with overall affordability.
Typical Car Loan Lengths
The most common lengths of car loans may range anywhere from 60 to 84 months total, though some may be shorter or longer, and some lenders offer lengths that don’t fit within the norm at all.
Car loan terms
The length of a car loan is referred to as its term. 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)
The longer the term, the more time you’ll have to pay off the loan. However, it will also give more time for interest to accrue.
The most popular loan length
The most common loan length changes from time to time, but currently, it’s 72 months for both new and used vehicles. This is a bit higher than in previous decades, and the number seems to be creeping upward.
The reason for this popularity is likely because it’s easier to afford than a 60-month loan without being too long. That said, it’s possible that in future years, 84-month loans will become more popular as the lower monthly payments will look more attractive to buyers.
Advantages Of Long Car Loan Lengths
The advantages provided by long loan lengths make them desirable to car buyers, whether they’re buying used or new. Some of those advantages include those described below.
Lower monthly payments
Since the total loan amount is spread out over a longer period, the individual loan payments will be smaller than you’d get with a short-term car loan. That can make it easier to afford, and it’s one of the reasons long-term loans are appealing to so many people.
Easy way to build credit
With the affordability of a longer loan term, it can be a good way for people to build credit while making their monthly payments. It isn’t the only way to build credit, but the lower monthly payments can help.
Afford a better car
With lower payment amounts, it’s possible to purchase a better, more expensive car than you would be able to get with a short-term loan.
Drawbacks Of Long Car Loan Lengths
Alongside the advantages of long term loans, there are a few drawbacks to keep in mind.
- Long loans have more time for interest to accrue, and they tend to have higher interest rates overall.
- The longer-term means your vehicle will likely depreciate before you pay it off, and you might have to pay more than it’s worth.
- There’s more opportunity to default on the loan, possibly resulting in the seizure of your vehicle.
Because of these drawbacks, a longer loan term is usually not considered ideal.
Advantages Of Short Car Loan Lengths
While long-term car loans are popular and provide several benefits, they do have their drawbacks as well. Short term car loans help avoid those disadvantages with the benefits they offer.
The first benefit of a short car loan term is the fact that you’ll end up paying less interest. Not only do short loan terms typically have better interest rates, but they also provide less time for interest to accrue as well. That could mean saving thousands on the total cost of your car once it’s paid off.
There’s a substantially lower risk with a shorter car loan term for several reasons.
For instance, since vehicles depreciate over time, you’ll be less likely to end up underwater—or owing more than your car is worth—in your loan. That means if you need to sell the car or collect on an insurance policy, you’re less likely to be held liable for loan payments beyond the vehicle’s worth.
Get out of debt sooner
The final benefit is you’re able to get out of debt sooner than you would with a longer loan term. You’ll be free to drive your vehicle for longer without having to worry about making monthly payments on it.
A common issue with purchasing a new vehicle is that many car owners feel the need to get a new one after several years. If you buy a new car every six years and opt for six-year loans, you’ll constantly be making payments. With a shorter term, you’ll have time to breathe in between purchases.
Drawbacks Of Short Car Loan Lengths
Short loan terms have a few drawbacks that are worth considering when searching for a car loan, including:
- Short loans have higher monthly payments, potentially making them harder to afford.
- You may need to make a larger down payment to keep monthly payments at a reasonable level.
- You might not be able to afford the car you want.
While it’s generally best to go for the shortest loan term you can afford, sometimes the only affordable option is something a bit longer.
Choosing The Right Loan Term For You
Long and short loan terms each have their advantages and drawbacks, and choosing the right length for your situation will mean weighing those against one another.
To summarize the benefits and drawbacks of each:
- Long loan terms mean lower monthly payments and better affordability, but ultimately cost more and have more risk of going underwater in the loan.
- Short loan terms require higher monthly payments, but ultimately cost less interest and have less risk.
Typically, you’ll want to get the shortest loan term you can handle. Determining where that lands in terms of 36, 48, 60, 72, or 84-month loans will mean looking at your income, your savings, and the car you want to purchase.
Pay Off Your Car Faster