When you're financing a vehicle, it’s wise to choose a loan term that you can comfortably repay each month but also one that doesn’t last for too long. It’s a balance between how much you want to pay in interest charges and how large of a car payment you can handle.

What’s too Long for a Car Loan?

Typically, borrowers are recommended to choose a loan term that’s 60 months or less – especially if you’re set to have a higher-than-average interest rate.

The key to choosing a loan term is understanding how much you’re going to pay over time and your position as a borrower. If you have poor credit, you’re likely to pay more when you finance due to a higher interest rate. Keep your interest charges in mind while choosing a loan term because they can add up quickly.

For example: Let’s say you want to finance a used vehicle for $20,000 with a 13% interest rate (the average interest rate for bad credit borrowers in our dealer network).

Using this information, here are the estimated interest charges you pay depending on your loan term:

  • What Is the Longest Auto Loan Term to Aim For?48-months: $5,754
  • 60-months: $7,304
  • 72-months: $8,907
  • 84-months: $10,562

You may be wondering, “What about the monthly payment?” and that’s a solid concern. Estimated monthly payments by loan term using the above example are:

  • 48-months: $536.55
  • 60-months: $455.06
  • 72-months: $401.48
  • 84-months: $363.84

You may now see how choosing a loan term is a balancing act between month-to-month affordability and long-term cost. Choosing an 84-month loan term certainly gets you lower monthly payments, but it also means paying well over $10,000 in interest charges and end up paying over $30,000 for a $20,000 vehicle.

The Cost of Vehicle Financing

Most borrowers don’t get to borrow money from an auto lender for free. Lenders charge interest, and borrowers with the lowest credit scores are typically charged more.

If you have great credit, for example, you may qualify for a 0% interest rate for 84 months – which means choosing the longest loan term available can benefit you greatly. A low monthly payment and no interest? Great deal!

However, borrowers with credit scores below 700 aren’t likely to qualify for incentives like this, and it’s a good idea to plan and account for interest charges. You never really know what your interest rate is going to be until you apply for a car loan, but with a poor credit score, you may have to plan for an interest rate in the double digits.

A good way to lower your interest charges is by choosing an inexpensive vehicle, putting money down, and choosing a shorter loan term. Having a large down payment can also increase your chances of qualifying for a car loan if your credit score is less than stellar. It shows you’ve some skin in the game and lowers the amount you need to finance.

Start Car Shopping Today

Here at Auto Credit Express, we know that sometimes the hardest part of getting an auto loan is finding the right lender. Not all auto lenders can assist borrowers with less than perfect credit, but we’ve got connections.

Complete our free auto loan request form and we’ll look for a special finance dealership in your local area. Dealers in our network are signed up with bad credit auto lenders that know that borrowers are more than a credit score – so get started today!