Long car loan terms, like 84 or 96 months, can seem like a good deal, but they can cost you much more in the long run.
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You’re car shopping and find just what you’re looking for. It’s perfect, well, except for the price tag. After crunching the financing numbers, your enthusiasm turns to disappointment when you realize the monthly payment is more than you can afford. But there could be a solution: extending the loan term to 84 months — or maybe 72 or 96 months — to reduce the payment amount.
If you’re working with a dealership’s finance person or directly with a lender, they may very well suggest stretching out the loan term. Not all lenders offer 96-month auto loans, but many now do. And, more and more car buyers are agreeing to go with six, seven and eight year car loans.
According to consumer credit reporting company Experian, the average auto loan term in the first quarter of 2025 was 68.63 months for new cars and 67.22 for used cars. In that same time period, nearly 70% of both new and used car buyers signed for loans with terms of 61 months or more.
When buying a new or used car, one of the biggest decisions you’ll make is how long you should finance it for. While a longer loan term of 72 months or more means lower monthly payments, it also results in paying more interest over the life of the loan. So what’s the right auto loan length for your situation? Here’s a detailed look at the pros and cons of different car loan terms to help you make the best choice.
Current Auto Loan Trends
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The average new car loan term hit a record 69 months in Q1 2022, up from 66 months in 2021 Long loans of 73-84 months now make up over 30% of new car loans
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Used car loans average around 65 months Buyers finance similar amounts as new cars but take nearly as long to pay off
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Interest rates on new car loans average around 6%, used car loans are higher at 9%.
How Long Are Other Buyers Financing?
Many buyers no longer follow the old “20/4/10” rule:
- 20% down payment
- 4 year loan
- 10% of income for car expenses
This is outdated given today’s high car prices. Instead, a 5 year loan is recommended, but trends show loans getting longer:
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New cars are kept around 6 years on average before trade in But with a 6 year loan, there’s no payment-free time before getting a new car loan
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With used cars financed for 5-6 years, buyers risk being underwater on loan when they want to sell.
Disadvantages of Long Car Loans
While longer loans have lower payments, they have significant downsides:
1. Car Fatigue
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Long 6-7 year loans mean still having payments when you get tired of the car and want something new. This limits trade-in flexibility.
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Shorter 3-4 year loans give 1-2 years without payments before desire for new car.
2. Higher Interest Paid
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Longer loans mean paying more total interest. An 84 month new car loan can add $5,000+ in interest versus 60 months.
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More time until loan payoff means longer wait to build equity.
3. Increased Negative Equity
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Long loans increase the “upside down” amount owed versus car value, reducing trade-in options.
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More finance charges make it harder to reach positive equity point.
4. Lower Resale Value
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A 5-year old car retains value better than a 7-year old car, giving more trade-in or sale flexibility.
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Dealers pay more for 5-year old cars to resell as certified pre-owned.
Alternatives to Minimize Loan Length
If faced with high payments on a 5 year loan, consider:
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Getting a less expensive car that better fits your budget
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Buying an older used car with already depreciated value
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Putting more money down to reduce financed amount and payments
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Finding a lower interest rate through credit union financing
Final Tips
The monthly payment isn’t everything. Carefully review total interest paid over the loan term before signing. A longer loan gives lower payments but higher total cost. Think about your future plans and how long you expect to keep the car when choosing a loan term. While tempting, extra-long loans of 6 years or more can create problems down the road.
Your good credit earns a very low interest rate
Special low APR offers aren’t as common in today’s market, but a small percentage of car manufacturers are still offering them, usually only to borrowers with good or excellent credit.
If you qualify for a special rate, for example 3.99% APR for up to 84 months, you could make a large down payment to shorten the loan length. However, with such a low rate, it could make sense to use the down payment for paying off higher-interest loans and credit cards.
Long-term auto loans can have positives and negatives. To determine if going 72 months or beyond is a good idea for you, weigh what you have to gain against what you stand to lose.
You have a higher risk of developing negative equity
The longer you drive a car and add mileage to it, the greater your chance of developing negative equity — also called being underwater on a car or upside down. As your car loses value, you could reach a point of owing more on your loan than the car is worth.
If your car has negative equity, and it’s totaled in an accident, your insurance company would only pay the market value of the car. You would still be liable for the difference between your outstanding loan balance and what you get for the car.
Choosing the Right Term: Deciding the Ideal Car Loan Duration
FAQ
What is the best length of time to finance a car?
Overall, if you’re choosing between the two, a 60-month loan is better because you’ll pay off the loan faster with a lower interest rate, paying less overall …
How much is a $30,000 car payment for 60 months?
Is it smart to do a 72 month car loan?
These 72-month loans are a horrible idea and will leave you upside-down for a long time. The fact that your monthly payment is lower is a bad thing because you’re paying more in interest and paying an extra year.
What is the 20 4 10 rule?
The “20/4/10 rule” is a guideline for car buying that suggests a financially sound approach to vehicle ownership.
How long can you finance a used car?
Experts recommend setting the term of a used car loan to 36 months, even though this will make the payments higher. If you’re buying a new car, you can finance for 60 months. Remember as you work with the calculator that you’ll have to pay sales taxes and fees. In many states this could amount to an additional 10% of the purchase price of the car.
How long should a car loan be?
The longer your loan term, the more you will likely pay as interest charges. In fact, for 72-month or 84-month loan terms, you may end up paying more than your car is worth. Most experts agree that a loan term below 60 months is the ideal length.
How long does a used car loan last?
Some lenders only lend for used automobiles that haven’t been driven for a particular number of years or up to a certain number of years from the date of first registration. Used car loans often have shorter terms than new automobile loans, which can last up to 7 years.