Experian Automotive recently announced that longer-term loans are on the rise. But is doing this such a good idea if you have less than perfect credit?

Experian Automotive report

According to Experian's latest State of the Automotive Finance Market report, during the first quarter of 2015, the average loan term for both new and used cars stood at an all-time high: 67 months for new cars and 62 months for used cars.

Experian's senior director of automotive finance, Melinda Zabritski, had this to say about the phenomenon, "While longer term loans are growing, they do not necessarily represent an ominous sign for the market. Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank. However, it is critical for consumers to understand that if they take a long-term loan, they need to keep the car longer or could face negative equity should they choose to trade it in after only a few years."

Long term loans with poor credit

But in addition to having to keep a car longer, borrowers with tarnished credit are faced with an additional issue.

In this case, the increased interest charges of a subprime auto loan mean that, for the same loan term, a borrower with a vehicle financed with a higher interest rate will find him- or herself in a negative equity situation far longer than if that same vehicle was financed at a lower interest rate.

This means that even if a credit-challenged consumer manages to improve his or her credit scores a third of halfway through a loan, the vehicle can't be traded in or refinanced unless the borrower can come up with the difference in cash.

This means car buyers who take out a 6 or 7 year bad credit auto loan are committing themselves to a high subprime interest rate (and high interest charges) for at least 5 to 6 years, regardless of how quickly or how high they raise their credit scores.


To avoid this from happening, here is what we recommend borrowers with problem credit should do:

  • Choose a car that fits well within your budget with a payment that falls between 10% and 15% of your gross monthly income (the lower the better).
  • The more you have in real trade equity or cash for a down payment, the better. Aside from new car rebates or dealer cash, 15% or more of the selling price will increase the chances of an approval.
  • Finance the vehicle for the shortest term you can afford – we're talking 48 months or less, if possible. This will allow you to trade out of the vehicle sooner and, if your credit has improved, into a new loan with a lower (possibly much lower) interest rate.

The Bottom Line

With the length of the average auto loan increasing, it's important that borrowers looking for a bad credit car loan keep the terms as short as possible. Not only will they save money on interest charges, this will also allow them to trade out of the car sooner and into a new loan with a better interest rate.

One more tip: Auto Credit Express matches buyers with bruised credit to dealers that can offer them their best chances for approved auto loans.

So, if you're ready to reestablish your credit, you can begin the process now by filling out our online auto loan application.