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Car loans typically range from two to seven years, or 24 to 84 months. The average car loan length is between three and five years, but the length you choose will vary depending on your goals and financial situation.As you’re shopping for a car loan, you’ll need to consider the term length, your down payment, and the car loan’s interest rate. Think about how much of a monthly payment you can afford and how long you want to be making payments for. The shorter the term, the higher your payments will be, but the less you’ll pay in interest overall.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 2024 stood at 67.62 months, or nearly six years. That’s down slightly year over year. For used vehicles, the average term for an auto loan is slightly lower at 67.37 months. Used auto loan terms appear to be on the rise year over year.The move toward longer-term 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.
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.
Risk and Credit Score
Average Loan Term in Months (As of Q1 2024)
Average Loan Interest Rate by Risk
Super Prime (781-850)
63.31
5.38%
Prime (661-780)
70.91
6.89%
Near Prime (601-660)
73.81
9.62%
Subprime (501-600)
73.05
12.85%
Deep Subprime (300-500)
71.49
15.62%
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.
Risk and Credit Score
Average Loan Term in Months (As of Q1 2024)
Average Loan Interest Rate by Risk
Super Prime (781-850)
65.53
6.80%
Prime (661-780)
68.63
9.04%
Near Prime (601-660)
68.28
13.72%
Subprime (501-600)
66.35
18.97%
Deep Subprime (300-500)
63.67
21.57%
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.
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 payment will be. This can make them more manageable for people who don’t have 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. 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 build 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.Here are the pros and cons of longer auto loan terms at a glance.
Pros of Long Auto Loan Terms
Cons of Long Auto Loan Terms
More manageable monthly payments: The longer your term, the lower your monthly payments tend to be.
Higher interest rates: The longer a loan’s term, the more risk it is for lenders. To compensate for this risk, they will charge a higher interest rate.
Cash for other expenses: Lower monthly payments may free up cash to use to focus on other financial goals, such as paying off high-interest credit card debt.
More interest payments: A longer term also means you’ll make more interest payments, which could cost you more over the life of the loan.
Short vs Long Term Car Loans
When financing a vehicle, understanding the difference between short-term and long-term auto loans is crucial. These loan types vary significantly in terms of monthly payments, interest rates, and the total cost of the loan over time.
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
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 36.1 months as of the first quarter of 2024, 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 2024 stood at $516, while the average new car loan repayment stood at $735.
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 loan of 48 months or less may feature a sizable monthly payment but fewer interest charges. A long-term loan 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.Recommended: Fixed vs. Variable Rate Car Loans
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 refinance 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, refinancing may also be worth considering. Refinancing could also help you pay off your car loan faster if you decide to shorten your term.Refinancing with bad credit 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.
Frequently Asked Questions
Is 60 months considered a long car loan term?
How long is the average vehicle loan length?
Is 7 years the longest possible car loan length?
Photo credit: iStock/Oleh_Slobodeniuk
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About the Author
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.
