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What Is the Average Car Loan Length?

What Is the Average Car Loan Length?
Austin Kilham
Austin KilhamUpdated August 11, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
As you’re shopping for a car loan, there are a number of factors to consider, including your down payment, the car loan’s interest rate, and the length of your loan, also known as your term, in car loan terminology. When you finance a car, your payments — including principal, interest, and fee — are spread out over the months of your term using a process called amortization.For many years, most people chose car loans with terms of three to five years. In recent years, however, that has been changing. Consider one survey from the Consumer Financial Protection Bureau that shows that in 2009, only 26% of car loans had terms of six years or more, while that percentage leapt to 42% in 2017. Since then, this upward trend has mostly held into the first quarter of 2022, according to the latest data from the Experian State of Automotive Finance Market report. Here’s a closer look at average terms for new and used auto loans and how to determine what term might be right for you.  

How Long Is a Typical Car Loan?

The average car loan length for new vehicles in the first quarter of 2022 stood at 69.48 months, or nearly six years. That’s down slightly year over year. For used vehicles, the average term for an auto loan is about 68 months. Used auto loan terms appear to be on the rise year over year.The move toward longer loans may reflect a consumer desire for more manageable monthly payments. Typically, the longer a loan’s term, the lower the amount the borrower pays each month. However, they may end up paying quite a bit more in interest over the life of the loan, compared with what they would have paid with more traditional four or five-year terms.Loan terms vary widely by risk rate, ranging from deep subprime loans to super prime loans. Subprime loans are offered to borrowers who have poor credit, while super prime loans go to borrowers with excellent credit. For new and used vehicles, borrowers with the best credit tend to have loans with shorter terms. Here’s a detailed look at the breakdown between new and used cars.

New Cars

On average, new auto loan terms have been decreasing slightly for all but the riskiest loans over the past year, according to the credit bureau Experian. Terms have decreased the most for super prime loans to borrowers with the best credit. These borrowers also tend to have the shortest loan terms, with an average of 64.33 months. At 74.17 months, near prime borrowers have the longest average loan terms.

Used Cars

In contrast to the average new car loan, used car loan terms have risen over the past year across all risk types. Super prime loans saw the greatest increase, while subprime loans saw the smallest. Interestingly, deep subprime used car financing carries the shortest average car loan length at 60.44 months. Near prime loans have the longest average terms at 67 months.

Maximum and Minimum Loan Term Length

You may ask, “How long are car loans?” The answer can vary across financial institutions. Lenders determine the maximum and minimum loan terms they are willing to offer consumers. Some lenders may offer loan terms as short as 12 months and as long as 84 months. Some lenders may even offer 144-month auto loans, particularly when financing exotic cars that cost more than $100,000.The way how car loans work is that lenders provide financing to help borrowers purchase a new or used vehicle. Borrowers are expected to repay the car loan over a set term, and these loans may include annual percentage rates or APR interest charges.Consumers with good credit may qualify for auto loans with 0% APR. In general, good auto loan interest rates fall under 5%. The average interest rate on new car loans in the first quarter of 2022 stood at 4.07%, according to Experian data.Consumers may ask, “What happens to car loans when someone dies?” The answer is that car loans do not simply disappear when a borrower dies. A surviving spouse may be responsible for paying the debt, or a lender may move to repossess the vehicle.Borrowers are expected to provide proof of identity and proof of income when applying for auto loan financing, among other auto loan requirements.

Determining the Right Car Loan Length for You

The length of your term can have a big impact on how much you end up paying each month and over the life of your auto loan.Generally speaking, the longer the loan term, the smaller your monthly payments will be. This can make them more manageable for people who don’t have a lot of extra cash flow.However, there’s a catch: Longer loan terms may lead to higher interest rates, and at the very least, it means you’ll be making interest payments for a longer period of time. So, for lenders, the advantage of longer terms is that they’ll be able to collect more interest from you. That puts you at a disadvantage, and you may end up owing thousands of dollars more on top of the price of your vehicle. If you have a very high interest rate, your interest payments can add up to a lot of money quickly.Once you factor in the increased cost of interest over the life of your loan, you may decide that a longer term is too expensive for you. If this is the case, consider saving longer to increase the size of your down payment. Typically, the more money you put down, the lower your monthly payment and interest rate will be, which can help make your payments smaller. You might also try to improve your credit score by correcting any errors on your credit report and paying off debts. The higher your credit score, the more likely lenders are to offer you loans with favorable interest rates, which can also save you money.There are certain circumstances in which a longer auto loan may be beneficial to your overall financial plan despite involving more interest payments. For example, if a more manageable monthly payment helps you pay down debt with a much higher interest rate, such as credit card debt, at the same time, you may actually save money overall in the long run. Here are the pros and cons of longer auto loan terms at a glance.

Short vs Long Term Car Loans

The below table compares short-term car loan borrowers with long-term car loan borrowers using Experian financing data: 

Pros and Cons of Short Term Auto Loans

Below we highlight some of the pros and cons of short-term auto loans:

Pros

  • Loan amortization schedule can feature 48 monthly payments or fewer
  • May feature fewer interest charges than long-term auto financing 
  • Can help consumers build credit

Cons

  • May feature sizable monthly payments
  • May require good credit when financing new car purchase
  • Can impact your debt-to-income ratio more than long-term financing

Pros and Cons of Long Term Auto Loans

Below we highlight some of the pros and cons of long-term auto loans:

Pros

  • Can make it easier for consumers to afford new and used cars
  • May feature affordable monthly repayments
  • Can help consumers build credit

Cons

  • Consumers may face interest charges for 85 months or longer
  • Can keep consumers indebted for more than seven years 
  • Interest rates may be higher than short-term financing

Typical Term Lengths for Car Leases

A typical new car lease has an average term of 36.41 months as of the first quarter of 2022, according to Experian. When considering the option of leasing vs. buying a car, you may review the pros and cons of car lease financing.A car lease typically includes a lower monthly payment than auto loan financing. The average monthly payment on a new car lease in Q1 2022 stood at $522, while the average new car loan repayment stood at $648.

Choosing the Right Auto Loan Term Length for You

Exploring what you can afford and what you’re willing to pay may help you choose the right auto loan term length for you.A short term of 48 months or less may feature a sizable monthly payment but fewer interest charges. A long term of 85 months or more may provide you with a more affordable monthly payment but greater exposure to interest charges.Failing to pay and defaulting on an auto loan can hurt your credit score. You may also lose the vehicle to repossession if you default on a secured auto loan that pledges the vehicle as collateral.

How Refinancing Can Change the Length of a Car Loan

If at any point your auto loan becomes unmanageable, you want to pay off your loan early, or you want to save money with a lower interest rate, refinancing your auto loan is a possibility. When you’re refinancing your loan, you essentially take out a new loan to pay off your old one. Your new loan might allow you to secure better terms or a better interest rate.For example, you could lengthen the term of your loan when you refinance to lower your monthly payments.Also, ideally, you would be able to find a new loan with a lower interest rate, which could save you money in the long run.Consider refinancing if your income, credit score, or debt-to-income ratio improves. These are metrics lenders use when deciding whether to extend a loan. If interest rates drop in general, or if you find a better deal than the one you initially signed up for, it may also be worth considering refinancing. Refinancing could also help you pay off your car loan faster if you decide to shorten your term.If you have bad credit, refinancing can be more difficult, but it’s often still possible to find lenders willing to offer you a better loan. 

The Takeaway

In recent years, new auto loan terms have been higher than they’ve historically been. However, before you sign on for a loan with a long term, be aware of some serious financial considerations.While a longer term can make your auto payments more manageable in the short term, you’ll end up paying more in interest over the life of the loan. If your term is long enough, your loan could end up upside down, meaning you owe your lender more than your car is actually worth.So before you buy, carefully consider how a longer term might fit into your overall financial plan and whether there are other ways for you to make your auto loan more manageable. If you’re interested in finding refinancing for an auto loan, visit Lantern by SoFi. You can compare rates for refinanced loans and find the information you need to help you choose the loan that’s right for you.
Photo credit: iStock/Oleh_Slobodeniuk
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0821139

Frequently Asked Questions

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About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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