You’re unique, and so is everyone else! How long you want your auto loan can be dependent on your personal circumstances and simply what you qualify for. But if you’re not sure what loan terms you should aim for and your credit score isn’t the best, we’ve got some suggestions.
When it comes to car loans, many buyers are opting for longer repayment terms in order to lower their monthly payments But is taking out a loan longer than 5 or 6 years a smart move? In this article, we’ll examine whether 7 years is too long for a car loan
The Trend Toward Longer Loans
In today’s market, car loan terms are getting longer According to Edmunds data, the average new car loan term hit 69.1 months in Q1 2025, up from 68.9 months in 2024 Loans with terms of 73-84 months accounted for 19.8% of new car loans in early 2025, up from just 15.8% the year before.
At the same time, short term loans of 48 months or less dropped to just 10.2% in Q1 2025. It’s clear that more and more buyers are opting for 6, 7, or even 8 year loans instead of the traditional 4 or 5 year terms.
This shift is likely driven by the high prices of new cars today. The average new car transaction price in early 2025 was $41,473. With interest rates around 7%, even a 5 year loan can mean payments of $740 or more per month. By extending the term to 7 years, buyers can drop their payment by $50-100 in some cases.
The Downsides of Long Loans
While that lower monthly payment may seem appealing, there are some significant downsides to consider with extra-long auto loans:
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More interest paid – With a longer loan, you’ll be paying interest for a longer period. A 7 year $40,000 loan at 7% APR means paying over $9,300 in interest, compared to just over $7,000 on a 5 year loan.
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Slower equity building – It takes longer to build equity, limiting your options if you want to sell the car early. After 5 years you may have 10-15% equity, versus 5% or less after 7.
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More underwater time – Cars depreciate quickly, so you may owe more than the car is worth for 3-4 years on a long loan. This also limits your options if you want to sell.
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Lower resale value – A 7 year old car typically has depreciated nearly 60%, and most automakers won’t certify a car over 5-6 years old. So you’ll get less on trade in or resale.
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Increased repair costs – An older car out of warranty is more likely to need repairs and maintenance, adding to the total cost of ownership.
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Car fatigue – After 5-6 years, many owners start to get bored with their car. But with a 7 year loan, you may be stuck with payments on a car you’re tired of.
When Does a Long Loan Make Sense?
While they come with risks, longer loans can make sense in certain situations:
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If you drive very little and plan to keep the car for 10+ years, the slower depreciation is less of a concern.
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If you have an unstable income, the lower payment provides flexibility even if you pay more overall.
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On a new car with strong resale value, like a Toyota Tacoma or Wrangler, even a 7 year old model will retain value well.
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If you’re financially disciplined and plan to make extra payments to pay off the loan early, minimizing interest costs.
Tips for Long Car Loans
If you do opt for a longer 6, 7, or 8 year loan, here are some tips to make it more financially sound:
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Put down a larger down payment, at least 15-20%, to start out with equity and offset rapid first year depreciation
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Look for 0% or very low APR deals to minimize interest expenses
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Buy a certified pre-owned model that comes with extended warranty coverage for the long loan period
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Budget for higher maintenance and repair costs as the car ages
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Make extra principal payments when possible to pay off the loan faster
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Consider gap insurance to protect against underwater situations in early years
The Ideal Loan Term
While every situation is different, for most buyers a 5 year loan represents the best overall balance. The faster equity building, lower interest cost, and reduced depreciation impact make it ideal for the average owner who keeps their car 5-7 years. But in today’s market, securing the lowest monthly payment is driving many to accept the risks and higher costs of longer 6, 7, or 8 year car loans. As long as you understand the trade-offs, an extended term doesn’t have to be detrimental – but it requires discipline and diligent budgeting to avoid the pitfalls.
Long Car Loans + High Interest Rate = Bad News
Auto loans almost always use a simple interest formula, which means you’re charged interest daily on the remaining balance of your loan. The further you stretch your loan, the more you pay in interest charges; so, a longer loan term means paying for more for the vehicle overall.
If you have bad credit, you’re more likely to be assigned a higher interest rate than someone with a good credit score. Knowing this, aim for the shortest loan term you can afford if your credit has seen better days, and try to pay off the car loan as quickly as possible to save on interest charges and improve your credit score for a later date.
If you take on a seven-year, or 84-month, auto loan with an interest rate that’s in the double digits, it could mean paying way more than it’s even worth. Take your time to save up for a down payment, find the right lender, and choose a vehicle that you can comfortably afford each month so you don’t have to break the bank or extend your loan term.
Considering a 7-Year Car Loan
For borrowers, considering a seven-year car loan, which is an 84-month loan term, isnt always a bad thing. However, you have to think about both your auto loan as a whole and your credit situation.
Most borrowers are concerned with what kind of vehicle they want, the interest rate, and the monthly payment. Often, car buyers ignore the length of the loan until the very end of the financing, and many stretch their loan terms to lower their monthly payment, but this isn’t recommended for bad credit borrowers.
Stretching your loan term to seven or even 10 years is probably too long for an auto loan because of the interest charges that stack up with a higher interest rate.
To illustrate, say you take on a $10,000 car loan for seven years with a 13% interest rate (a common rate for bad credit borrowers). If you make every scheduled payment over those seven years, you pay over $5,200 in interest charges.
However, with a five-year loan term, you pay around $3,600 in interest charges – that’s $1,600 in savings.
While extending your loan term does lower your monthly payment, paying over $15,000 for a $10,000 vehicle probably doesn’t sit very well with many car buyers.
If you have good credit and you qualify for a low interest rate, then the interest charges may not be that big of a concern on a seven-year loan term. You can play around with auto loan amortization calculators with different loan amounts, interest rates, and loan lengths to see how much you could really be paying for a vehicle.
Is 7 years too long for a car loan?
FAQ
Is it smart to finance a car for 7 years?
Of course, it’s also essential to be cautious when taking out any kind of loan, as it could lead to financial instability if not managed properly. While a 7-year car loan might reduce monthly payments, longer loan terms can also lead to negative equity – this means a person owes more on the car than it’s worth.
What is the best length of loan for 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 …
Can I do a 7 year car loan?
Seven-year loans made up 19.8% of all new vehicle financing by dealers in the first quarter of 2025, Edmunds reports, an all-time high. The average new-car customer borrowed $41,473 in the first three months of 2025, at an annual interest rate of 7.1%, for an average monthly payment of $741.
Do auto loans fall off credit after 7 years?
Yes. After 7 years, the debt is removed from your credit report.
Is 5 years too long for a car loan?
5 years is my term limit for auto loans. If i can’t make the payments reasonable enough to pay off in 5 years (by putting money down) then i can’t afford the car. If I literally can’t afford to pay if off in cash it’s too long for me. Don’t just look at the monthly payments. I generally do not pay in full if the interest rate is less than 4%.
How long should a car loan be?
IMO 48 months is the perfect loan term. 60 is acceptable but 72 months you’re stretching to afford said vehicle. Anything longer than 5 years makes me uncomfortable. Although I have a tendency to pay them off within 2 years. depends on the car, the down payment, etc. My goal is to never have a note thats worth more than the car.
Should I take out a long term car loan?
Also assuming you are interested in keeping the car for the duration of the loan. Don’t take out a 72 month loan if you want a new car in three years. OR, purchase a vehicle that you know has a high resale, low depreciation. But generally, thinking that a long term auto loan is ALWAYS a poor financial decision is pretty narrow minded.
How to avoid a long-term auto loan?
Avoiding a long-term auto loan requires consumers to understand all the aspects of a car deal. It is critical buyers avoid the temptation only to consider the monthly payment. Instead, they need to look at the total cost of the car, including its financing.
Is an auto loan of 84 months a good idea?
Even though the majority of car buyers are going with long-term car loans, is an auto loan of 84 months or more a good idea for you? NerdWallet recommends financing new cars for no more than 60 months and used cars for no more than 36 months. These maximums can help you avoid some of the negative outcomes of long-term loans.
Are long car loans a bad way to buy a car?
There are even more issues with long car loans that make them a horrible way to buy a car. When lenders compute interest rates, they look at several factors. History shows them that the longer the loan, the less likely the borrower will make all of the payments and ultimately pay off the car.