Getting a car loan is a big decision and one of the first things you’ll need to figure out is the loan term. This is the length of time you’ll have to repay the loan and it can have a big impact on your monthly payments and the total amount of interest you’ll pay.
So, what’s the average car loan length?
As of 2023, the average car loan length is 72 months, or 6 years. This is a bit higher than in previous decades, but it’s still a good starting point for figuring out what kind of loan term is right for you.
Here are some things to consider when choosing a car loan term:
- Your budget: Can you afford the higher monthly payments of a shorter-term loan? Or would you prefer to spread out the payments over a longer period of time with a lower monthly payment?
- Your credit score: If you have good credit, you may be able to qualify for a lower interest rate, which can save you money in the long run.
- The age of the car: If you’re buying a used car, you may want to consider a shorter loan term. This is because used cars depreciate faster than new cars, so you’ll want to pay off the loan as quickly as possible.
- Your personal preferences: Do you want to get the car paid off as quickly as possible? Or would you prefer to have lower monthly payments?
Here are some of the pros and cons of different car loan terms:
Short-term loans (less than 60 months):
- Pros: Lower total interest paid, car is paid off sooner, you can build equity in the car more quickly.
- Cons: Higher monthly payments, may not be affordable for everyone.
Long-term loans (more than 60 months):
- Pros: Lower monthly payments, may be more affordable for people with a tight budget.
- Cons: Higher total interest paid, you’ll be paying on the car for a longer period of time, you may end up owing more than the car is worth.
In the end, the term that best suits your needs both financially and personally is the one you should choose for your auto loan. Before making a choice, don’t be scared to shop around and compare offers from various lenders.
Here are some additional tips for choosing a car loan term:
- Get pre-approved for a loan before you start shopping for a car. This will give you a better idea of what you can afford and help you narrow down your choices.
- Consider putting down a down payment. This will reduce the amount you need to borrow and lower your monthly payments.
- Negotiate the interest rate. The interest rate is one of the most important factors in the total cost of your loan, so be sure to shop around for the best rate.
- Read the loan agreement carefully before you sign it. Make sure you understand all of the terms and conditions of the loan.
You can choose the ideal car loan term for your requirements and negotiate the best price by using the advice in this article.
P.S. If you’re looking for more information on car loans, be sure to check out the resources below.
- NerdWallet: https://www.nerdwallet.com/article/loans/auto-loans/average-car-loan-length
- Capital One: https://www.capitalone.com/cars/learn/managing-your-money-wisely/the-average-length-of-a-car-loan/2578
- Experian: https://www.experian.com/blogs/ask-experian/
Happy car shopping!
Short-Term Car Loans vs. Long-Term Car Loans
It can be helpful to know how different car loans will affect your finances when choosing between short- and long-term loans so you can determine which is best for your spending plan.
Because of their shorter duration, short-term auto loans—which normally last 60 months or less—often have higher monthly payments. Nevertheless, since there is typically less chance of default with a shorter loan term, interest rates and the total cost of your loan are typically lower.
Long-term loans typically have larger interest rates, larger lifetime costs, and smaller monthly payments because they are paid off over a longer period of time than 60 months. These loans allow you to spread out the principal over a longer period of time, which can free up additional funds for other possible monthly expenses.
How long is a typical auto loan, and how should you decide between short- and long-term loans?
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Article QuickTakes:
A car loan can be a serious commitment. Depending on the length of your loan, you could be locked into years of monthly payments. 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.
More than one factor could affect whether you go with a short-term or long-term auto loan. Your ability to pay for your car upfront, your ability to make monthly loan payments, and your willingness to pay interest over the course of the loan will all play a role in determining how long your loan should be.
Average new car loan monthly payment at an all-time high l GMA
FAQ
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