How Long Is the Average Car Loan? Discover all you need to know about average car loans, including car loan length, which is the focus of this write-up. A car loan has a specific period of time within which the borrowers can pay back, just like other types of loans. However, the length of a car loan includes short and longer loan terms.
How Long Is the Average Car Loan?
Long loan terms rule in the automotive industry, with the average loan length for a new car now at nearly 6 years. A longer loan term often comes with more interest and the risk of owing more on your loan than your car is worth.
However, there are some possible benefits to getting longer-term loans, depending on your financial situation. But there are still risks with longer-term loans that may make a five-year car loan, or other options, a better choice.
What Is A Car Loan?
A car loan is also known as an automobile loan or auto loan. It is a sum of money a consumer borrows in order to purchase a car. Typically, a loan is an amount of money that is lent to an individual, a business, or another entity. The person that lends the money is called the lender, while the person borrowing the money is called the borrower.
Further, when taking out a loan, a borrower agrees to pay back the full loan amount, as well as any interest (the loan percentage, usually calculated on an annual basis), by a certain date, typically by making monthly payments.
However, car loans follow most of the same rules and procedures that apply to other loans. And all car loans are for specific lengths of time, generally anywhere between 24 and 60 months, although some car loans can be for longer periods. This type of loan is also known as financing. Car loans basically include a variety of fees and taxes, which are added to the total loan amount.
Typical Car Loan Terms
The most common lengths of car loans may range anywhere from 36 to 84 months total. However, some car loan lengths may be shorter or longer, and some lenders offer lengths that don’t fit within the norm at all.
Average Length Car Loan
The length of a car loan is referred to as its term. However, the most common car loan terms are:
- 36 months (three years)
- Four years (48 months)
- 5 years (60 months)
- 72 months (six years)
- 84 months (seven years)
These are automobile loan length descriptions. The longer the term, the more time you’ll have to pay off the loan. The longer the term, the more interest.
What is the Average Car Loan Length? Average Auto Loan Length
Currently, the most common loan length is 72 months for both new and used vehicles. Though the average length of a car loan changes from time to time, 72 months is a little higher than in previous decades.
However, the frequency of the 72-month term only seems to be creeping upward, and the reason for its popularity maybe because it’s easier to afford than a 60-month loan due to stretching out payments. For this reason, it implies that in future years, 84-month loans will become more popular as the lower monthly payments will make them more attractive to buyers.
What Are The Advantages Of Long Automobile Loan Lengths?
Long automobile loan length has an attractive advantage, which car buyers will want to plug into.
- It helps to lower monthly payments.
- An easy way to build credit
- It enables borrowers to afford a better car.
These are some of the benefits of a long-term loan.
The Disadvantage Of Long Auto Loan Lengths
The auto long-term loan has both benefits and drawbacks. Here are some of the disadvantages.
- Longer loan terms have more time for interest to accrue, and they tend to have higher interest rates overall.
- In the long term, your vehicle will likely depreciate before you pay it off, and you might have to pay more than it’s worth.
- In a long-term loan, there is a great possibility of defaulting on the loan, possibly resulting in the seizure of your vehicle.
These are the downsides of the longer auto car loan term.
The Advantages of Short-Term Auto Loans
Short-term car loan advantages include:
- There’s lower interest with the short-term loan. Not only do short loan terms typically have better interest rates, but they also provide less time for interest to accrue as well.
- For several reasons, there’s substantially lower risk with a shorter car loan term.
- You can get out of debt sooner with an auto short-term loan.
These are the benefits of a short-term loan.
The Drawbacks of Short-Term Auto Loans
Short loan terms have a few drawbacks that are worth considering. They are:
- Short-term loans have higher monthly payments, potentially making them harder to afford.
- It may require you to make a larger down payment to keep your monthly payments at a reasonable level.
- You may not afford your dream car.
These are the disadvantages of choosing a short-term loan.
In choosing the right loan term for you, the long and short loan terms both have their advantages and drawbacks, and choosing the right length for your situation will mean weighing those against one another.
Is a 72-month car loan reasonable?
Wondering how long you should finance a car? Some people seem to prefer longer loan terms. There are some good reasons to consider bucking this trend.
A 72- or 84-month loan will likely leave you with a larger interest payment than a loan term of 60 months or less. For example, the $30,000, 3% APR car loan (with no down payment and no sales tax): You’d pay $2,344 in interest over a 60-month term. But with an 84-month loan at the same rate, you’d pay $3,301 in interest.
What is a good length for a car loan?
According to most personal finance professionals, the optimal length for a car loan is 48 months, although some are upping this length to 60 months due to the increased cost of cars and lower interest rates.
Should I get a 48- or 60-month car loan?
If you’re on a 36 or 48-month, you will generally pay less interest than you would on a 60-month. As a result, while your payments will be higher as the term shortens, your total interest paid will be lower.
What was the average length of a car loan in 2020?
The latest Experian State of the Auto Finance Market report discover the average term for new-car loans—the number of months required to repay the loans—increased by more than 2 months (2.37 months) to nearly 72 months total, from the second quarter (Q2) of 2019 to Q2 2020.