How Long is the Average Car Loan? A Closer Look at Auto Financing Terms

When shopping for a new or used car one of the biggest factors that impacts your budget is the length of the car loan – also known as the financing term. The car loan term significantly affects everything from your monthly payment to the total interest you’ll pay over the life of the loan.

In this article we’ll take a closer look at average car loan lengths term options, and what to consider when choosing an auto financing term.

What is the Average Car Loan Term?

According to consumer credit reporting company Experian, the average new car loan term in the first quarter of 2022 was 68.63 months – almost 5 years and 9 months. For used cars, the average loan length was slightly shorter at 67.22 months – around 5 years and 7 months.

Edmunds recommends keeping auto loans to no more than 60 months (5 years) for new cars and 36 months (3 years) for used cars. However, data shows loans are getting longer, which we’ll explore more below.

Car Loan Term Options

The most common car loan terms are 24, 36, 48, 60, 72 and 84 months from a lender. However, some lenders offer more flexibility with 12, 96 or even longer terms if needed by the borrower.

Here’s a quick rundown of the most popular auto financing term options:

• 12 months – Best for buyers with excellent credit and the cash to pay off quickly. Results in lower total interest costs.
• 24 months – Also works well for buyers who can pay off faster. Provides lower interest charges than longer terms.
• 36 months – The Edmunds recommended maximum term for used cars. A good balance of affordable payments and interest costs.
• 48 months – A moderate term that keeps interest costs reasonable on pricier new cars.
• 60 months – The Edmunds recommended maximum term for new cars. Allows buyers to keep payments manageable.
• 72 months – Growing in popularity, but results in paying more interest over a longer period.
• 84 months – The longest common term, but leads to much higher interest charges overall.

The Average Car Loan Is Getting Longer

It’s clear that longer car loan terms are becoming more popular. Edmunds data shows that 84-month loans hit an all-time high in the first quarter of 2022, making up 19.8% of new car financing. That’s up from 15.8% in the first quarter of 2021.

At the same time, short term loans (48 months or less) dropped to just 10.2% of new car financing in early 2022, down from 11.9% the year before.

The trend is similar for used cars. The average used car loan length in Q1 2022 was about 70 months – nearly 6 years. People are financing used vehicles for about the same amount of time as new cars, even though loan amounts are lower by $10,000 on average.

Why Are Buyers Opting for Longer Car Loans?

There are a few key reasons longer car loan terms are gaining favor:

• Bigger Loans – The average new car transaction price has steadily climbed to over $41,000 in 2022. Longer terms spread high loan amounts over more time to make the monthly payment more affordable.

• Higher Interest Rates – Auto loan APRs are up to around 7% for new cars and 8% for used cars in 2022. Longer terms offset higher rates to prevent payments from ballooning.

• Trucks & SUVs – 38% of new vehicles sold are now trucks and SUVs with higher prices that buyers finance over longer periods to manage payments.

• Economic Pressures – Factors like inflation make buyers seek lower monthly payments with longer loan terms to fit car purchases into tight budgets.

The Pros and Cons of Long Car Loans

Extended car loan terms can make automotive purchases possible, but they also come with drawbacks to consider:

Pros:

• Lower monthly payments
• Buy more expensive vehicles
• Offset higher interest rates
• Improve chances of approval with bad credit

Cons:

• Pay more interest over the loan life
• Slower to build equity in the vehicle
• Increased risk of negative equity
• Older car with less resale value when loan ends

Overall, the consensus is lengthy auto loans mean paying significantly more interest. But in today’s market, they may be the only real option for some buyers.

Tips for Picking the Best Car Loan Term

If faced with a long car loan, focus on keeping the term to 5 years or less when possible. Also aim to:

• Make a sizable down payment of 15-20% to lower the loan amount
• Shop interest rates from multiple lenders
• Choose the shortest term you can afford comfortably
• Accelerate payments to pay down principal faster
• Make extra principal payments when possible

Running car loan calculations with different terms is also essential. This allows you to estimate and compare total interest costs over time.

While longer financing periods have risks, they make vehicles accessible for more consumers in today’s challenging auto market. The key is going in eyes wide open by weighing the pros, cons and true costs involved.