What Is the Average Car Loan Length?

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Having reliable transportation has become one of the key components of adult life. Most households have access to at least one vehicle. And chances are that vehicle was purchased with an auto loan. Having an auto loan has become one of the most common types of debt that people carry. Whether you are a young adult, just starting out in life or an older, established person in need of more reliable transportation, a car loan might be in your future.

If you're looking at an auto loan for a new or used vehicle, make sure to do your research into the lender and terms of the loan you're being offered before you sign anything. So many skip this step and end up hurting their credit and financial health as a result. Getting into an auto loan means agreeing to certain payments, every month, for the life of the loan. In this piece, we take a look at how long that could be. It is important to think about the length of the average car loan so the consumer can plan accordingly, and ensure that they can handle the payments, on time, for the entirety of the loan.

Average Car Loan Length

In the last few years, the average auto loan length has increased. Right now, more auto loans are being inked for 72-84 months (6-8 years). This is an increase from the previous common length amount of 60 months (5 years). Everything is more expensive right now, and cars are no exception. Supply chain issues along with chip and rubber shortages have become a real challenge for the industry. They are also some of the forces behind the inflation we are seeing across the board in automotive.

As everything is rising in price, this means that the average household has less money per month to spend. This is part of why we are seeing more and more auto loans for 72-84 months, as it will mean a lower monthly payment for the consumer. While that may sound like a good thing, it also means more paid in interest and finance charges over the life of the loan. If you've got a high APR, this could mean you're paying thousands of dollars on top of the actual price of the car.

Read more on the 10 Common Mistakes to Avoid When Getting an Auto Loan here.

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How are Auto Loans Structured

An auto loan is actually quite simple, if you've done your research and know what you are getting into. Auto loans consist of an amount borrowed from a chosen lender, with a specific interest rate agreed upon at the start of the loan, and a certain amount of time to pay the loan back.

The interest rate you may be offered will vary widely, depending on many factors:

  • Your credit score
  • Your income
  • Personal debt history
  • The lending institution
  • Amount you are asking to borrow
  • Age and value of the car you are trying to purchase
  • Amount of time you are asking for in order to pay back the loan in full

Having a low, reasonable interest rate on your loan is important for many reasons. The lower the interest rate, the less you'll be paying over the life of the loan.

Read more on Average Auto Loan Rates here.

What to Consider Before Getting a Car Loan

There are many factors to keep in mind when deciding on the right auto loan. First, you have to decide on the car you want to purchase. Then you need to shop around online and in the dealerships to find the car you've decided on. That is the fun part.

Once you've made that decision, the next step is to take a very detailed and critical look at your finances. Hopefully, you can afford to put some money down on the car up front, or you have a trade-in to offer, or preferably both. The more money you can put into a down payment, the less you will have to borrow, which means lower monthly payments, a lower APR and shorter loan terms.

You'll also want to think about the future of your financial health in the coming years, to make certain you can handle the payments easily for the life of the loan. Paying an auto loan on time, every single month, can do great things for your credit score. But getting yourself into a long loan, with high monthly payments and a substantial interest rate that you cannot keep up with can do just the opposite. So make certain to choose wisely.

Once you've found the car of your dreams and you get accurate price quotes, and you've examined your finances and figured out a good down-payment, then you'll have a good idea of how much you'll need to borrow.

At this point, it is a smart idea to examine all avenues available to you. This means taking a look at auto loans offered from your bank and local credit unions, online lenders like LightStream and MyAutoLoans, in addition to the financing offered at the dealership. Looking into these options does not mean applying to all of them. You don't want multiple hard inquiries into your credit history, as it may affect you negatively in the long run.

If you have relatively good credit, you should also consider getting pre-approved before you actually talk to a salesperson about the financing they can offer. If you walk into the dealership holding a guaranteed offer in your hands, they will have to beat the proposed rates if they want your business.

Read more about Getting an Auto Loan Without Hurting Your Credit here.

Are Longer Length Car Loans of 72-84 Months a Good Idea?

In general, the best option is to shop around for the shortest loan possible, with the lowest APR available to you. The longer the loan, the longer you will be paying interest on that loan. And with a high APR, this could mean a difference of thousands of dollars.

That said, we all know there are some moments in life when you've run into some financial difficulties. It happens to the best of us. Many people find themselves facing a long loan term in order to bring down their monthly payments, or because they cannot afford a down-payment.

While the allure of a lower monthly payment sounds awesome, it actually means paying much more over time. Also with longer loan terms, you run the risk of finding yourself upside down, meaning you own a car that is worth less than the amount owed on the loan. This can happen over time, as the value of a vehicle depreciates over the years.

If possible, you should not agree to an auto loan with long terms. We recommend reading as much as you can about the auto loans available to you, to make the smartest decision possible.

And remember, ride sharing apps and public transportation exist all over the place now. Perhaps take a moment and do a cost benefit analysis of which path is best for you. If you can't afford the payments, gas, maintenance and insurance on a new car purchase, perhaps take some time to rebuild your credit, and take Lyft to work for a few months.

Read more on Bad Credit Auto Loans here.

Read more on the 7 Best Auto Loans in the industry today.

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FAQ

How long is the average car loan?

Auto loans can be anywhere from 2-7 years, in general. They tend to run in year increments, depending on the lending institution and the needs of the borrower.

Are long auto loans a good idea?

In general, no. A longer auto loan may mean a lower monthly payment, but it also means more interest paid over time. So be very careful before agreeing to a longer auto loan.

What is the most common auto loan length?

Most auto loans are between 60-84 months, depending on the credit score of the borrower and the lending institution. We suggest that you shop around, including checking online lenders and local banks and credit unions for the best possible loan terms available to you.

What are some good auto loan lenders?

There are a lot of reputable car loan lenders to choose from, depending on your credit score. Shopping around online and with your own bank is a good place to start. Read more about the Best Auto Loans here.

What does no penalty for early pay-off mean?

This means if you are to be able to pay off your loan early, there will be no penalty for doing so. This is a great thing, as paying your loan off early means paying less interest over the life of the loan. When shopping for loans, you should definitely try to make certain this is an option for you.

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