How long you want your car loan term to be depends on what you can afford. Generally, the rule of thumb is to keep your loan term as short as possible, but some car buyers may not be able to afford the resulting high monthly payments.
What is the Best Car Loan Length?
The best car loan term is subjective. You’ll need to figure out how much you can afford each month before determining how long your auto loan should be. Loan terms can range from 24 to 72 months or more, and shorter loan terms lead to a higher monthly payment but a lower overall cost of financing.
According to Experian, the average new car loan length is now 69.03 months and the average used car loan is for 64.23 months. The biggest issue with longer loan terms is the higher overall cost of financing due to the increase in interest charges. Car buyers with subprime auto loans are already faced with higher-than-average interest rates. Having a longer loan term increases the interest charges they’ll pay over the term of the loan.
Why Shorter Loan Terms are Better
Shorter loan terms seem unattractive to many car buyers because of the higher monthly payment they come with. But, the reality is that shorter loan terms are better for you in the long run. Here are four reasons why a shorter loan length is better than a longer one:
- The loan is paid off earlier – The higher monthly payments mean the loan gets paid off sooner rather than later.
- Less interest paid – Over the course of the loan, you'll pay less overall interest charges, so you save money in the long run.
- Higher resale value – You can’t stop depreciation from happening, but if you keep your term short, the vehicle's resale value should be higher (with all else being equal) once the loan is paid off.
- Decrease the chance of being upside down – Because more of your monthly payment goes toward the principal of the loan, you’ll minimize the risk of being upside down in the loan, or at least reduce the amount of time you're underwater.
Keep it Short and Sweet
In the end, it’s up to you to choose how long of a car loan term you want. If you can, it’s highly recommended you keep the loan term as short as possible.
Here at Auto Credit Express, we’ve taken the stress out of the searching for a dealership by working with a nationwide network of special finance dealers that have the lending resources you need. Let us help you find a local dealer. Simply fill out our no-obligation, cost-free auto loan request form to start the process today!