Couple at a dealership buying a car and deciding on their car loan term.

How long should a car loan be?

Wondering how long to finance a car? Check out these factors to determine how long may be too long and what's best overall for you.

When it comes to car loans, buyers have so many options on loan length terms these days. It's important to explore all the options up front so that you can be a more informed and confident buyer.

Does the length of a loan matter?

With autos getting more and more expensive, banks and creditors are allowing loans on new and certain used vehicles to get longer. Higher mileage used vehicles typically will not qualify for a longer loan. But there can be drawbacks to longer loans — whether for a new or used vehicle.

Factors to consider for long term auto loans

  • Because the loan is spread out over a longer period, your monthly payment may be more affordable for you. A smaller payment may allow you to buy that more expensive dream car you’ve always wanted.
  • Seventy-two months may make the monthly payment lower or more affordable, but it also means you'll be paying for that vehicle for six years — and potentially paying more in interest over time as well.
  • Most often, dealerships ask how much of a monthly payment you can afford as opposed to how much you want to spend. And this may sound great, especially if you are interested in a more expensive vehicle. However, stretching out the loan longer term may not be in your best interest.
  • In the first few years, you'll likely be "upside down" in the loan since you'll owe more than the vehicle is worth.
  • According to Edmunds, the average new car loan term is around 70 months, with 84 months (seven years) becoming more common.
  • If your vehicle is totaled, the amount paid will depend on the value of the vehicle and not the amount owed. If you have a loan with GAP insurance, that could help to make up the difference.

Is it better to get a shorter term car loan?

Long term and short term auto loans both have advantages, however a short term loan is typically better in the long run. Short term loans may save you money and be a better choice because of lower interest rates. You could pay less interest on a 36 or 48 month loan than a 60 month loan.

How does the down payment affect the loan?

The general rule of thumb is that the more you pay up front, the less you'll pay each month. Car dealers are also more inclined to "deal" on price and vehicle features if you can afford to bring more down payment to the negotiating table early on. Another important factor to remember is that new and used vehicles tend to decline or depreciate over time, unless they're highly sought-after collectibles.

However, it's still important to note that as the car gets older, it will go down in value. Thus, having a shorter loan term will mean the car is worth more at trade-in or resell time. You also want to avoid something called "negative equity". If you're ready to sell your car but still owe, say, $15,000 on it, yet it's only worth $10,000 at market value, then there's a $5,000 gap that needs to be closed to satisfy the loan.

Use this helpful calculator to assist in your exploration of loan length options.

Please consult your tax, legal, or investment advisor regarding your specific circumstances.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. State Farm makes no guarantees of results from use of this information.

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