When purchasing a vehicle, the loan term plays a crucial role in determining both your monthly payments and the overall cost of the car. What’s the average length of a car loan? For new vehicles, the average car loan term is around 68.48 months, while for used vehicles, it is about 67.41 months, which equates to nearly six years. This trend toward longer loan terms reflects buyers’ desire for more affordable monthly payments, though they ultimately pay more in interest.

Average New Car Loan Term

The typical loan term for new cars has been relatively consistent over the past year. The most recent data shows that new car loans average 68.48 months, a slight increase from the previous year. These loans are often available in terms of 48, 60, 72, or 84 months, allowing buyers to select the repayment period that suits their financial situation.

Impact of Credit Score on Loan Terms

When loan terms are broken down by credit score, it becomes evident that borrowers with lower credit scores tend to have longer loan terms. For example, borrowers with super-prime credit typically have shorter loan terms of around 64 months, while those with deep subprime credit may see terms stretching beyond 72 months. The key takeaway is that longer loan terms often correlate with higher interest rates and greater total costs.

Average Used Car Loan Term

Used car loans have also maintained a steady average loan term of around 67.41 months. Borrowers with subprime credit saw a notable increase in the average loan term, with deep subprime borrowers now averaging loan terms close to 64 months. This reflects a growing trend toward extended loan terms, even for used vehicles.

Breakdown by Credit Score for Used Car Loans

Used car loan terms also vary by credit score. For instance, super-prime borrowers typically have shorter loan terms of around 65 months, while deep subprime borrowers may experience loan terms exceeding 63 months. These longer terms make monthly payments more manageable but increase overall interest costs.

The Rise of Longer-Term Loans

Loans with terms of 61 months or more have become increasingly popular for both new and used cars. Approximately 70% of new car loans now have terms longer than five years, and the percentage of loans with terms of 73 months or more has decreased slightly. For used cars, more than 70% of loans now extend beyond 61 months, with a small decline in loans exceeding 73 months.

What Is the Average Term Length for a New Lease?

New auto lease terms have remained steady over the past year, averaging 35.86 months. Borrowers across all credit score categories typically opt for lease terms around this length, though super-prime borrowers tend to have slightly shorter terms.

How Longer Auto Loan Terms Can Cost You More

While longer loan terms may offer lower monthly payments, they can also increase the total cost of financing. The interest paid over a longer term adds up, particularly if the loan carries a higher interest rate. For example, a new vehicle purchased for $47,000 with an 84-month loan could cost you significantly more in interest compared to a shorter-term loan.

Comparison of Loan Terms and Total Costs

• 48 months: Monthly payments of $897.59 with $5,484 in interest paid over the term.
• 60 months: Monthly payments of $741.69 with $6,901 in interest.
• 72 months: Monthly payments of $638.16 with $8,347 in interest.
• 84 months: Monthly payments of $564.55 but nearly $10,000 in total interest costs.

As shown, choosing a longer loan term reduces monthly payments but increases total interest costs, making the car more expensive over time.

How to Choose the Right Auto Loan Term for You

Selecting the right loan term depends on your financial goals and situation. While longer loan terms offer lower monthly payments, they come with higher interest costs. Consider the following strategies to balance your budget and reduce total loan costs:

1. Choose a used vehicle: Used cars typically have lower prices, making shorter loan terms more feasible.
2. Make a larger down payment: Reducing the amount you need to finance allows for shorter loan terms.
3. Shop around for better loan offers: Getting prequalified by several lenders can help you find the best rates and terms.

Final Thoughts

Understanding what’s the average length of a car loan can help you make more informed financial decisions when purchasing a vehicle. While longer loan terms may provide short-term relief with lower monthly payments, they can significantly increase the total cost of the loan. By carefully considering your budget, loan options, and credit score, you can select the right loan term that balances affordability and long-term financial savings.

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