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What Is the Average Car Loan Length?

What Is the Average Car Loan Length?
Austin Kilham

Austin Kilham

Updated September 24, 2021
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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 second quarter of 2021, according to the latest data from the Experian State of Automotive Finance Market reportHere’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 length of a new car loan in the second quarter of 2021 was about 71 months, just under six years. That’s down slightly year over year. For used vehicles, the average term for an auto loan is about 64 months, a little over five years. 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 exemplary 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, for borrowers with the best credit. These borrowers also tend to have the shortest loan terms, with an average of 63.85 months. At 73.94 months, near prime borrowers have the longest average loan terms.

Used Cars

In contrast to the average new car loan, used car terms have risen over the past year across all risk types. Deep subprime loans saw the greatest increase, while super prime loans saw the smallest. Interestingly, deep subprime loans also carry the shortest average loan term at 60.38 months. Prime loans have the longest average terms at 67.04 months.

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. 

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
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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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