The Average Length of a Car Loan

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Article QuickTakes:

• The average car loan is around five years
• Short-term car loans vs. long-term car loans
• The risks of long-term auto loans
• What to consider when choosing auto loans

A car loan can be a serious commitment. Depending on the length of your loan, you could be locked into years of monthly payments. According to information-services company Experian, the average used- and new-car loan spans between 67 and 69 months — somewhere between five and six years — as of July 2023.

More than one factor could affect whether you go with a short-term or long-term auto loan. How you determine your ideal loan length will likely depend on how much money you can pay upfront for your vehicle, how much you can afford to pay monthly on your loan, and how much you're willing to pay in interest over the lifetime of your loan.

The Average Age of a Car Loan

Many car loans are measured in 12-month increments, ranging anywhere from 24 to 84 months total. There are lenders that sometimes offer loans lasting 96 months or longer.

According to Experian's State of the Automotive Finance Market Report, the average new-car loan length in the first quarter of 2023 was 68.6 months, while used-car loans averaged 67.4 months. That's close to six years of making monthly auto loan payments.

Short-Term Car Loans vs. Long-Term Car Loans

When deciding between short-term and long-term car loans, it can be valuable to understand how each will impact you financially, so you can decide which is the right fit for your budget.

Short-term car loans, which typically run for 60 months or less, often come with a higher monthly payment simply due to their duration. That said, a shorter loan term generally means less risk of default, so interest rates and the overall cost of your loan tend to be lower.

Long-term loans, which are usually paid off over more than 60 months, are likely to result in smaller monthly payments, higher lifetime costs, and higher interest rates. These loans spread out the principal of your loan over more time, which can free up some extra money in your monthly budget for other potential expenses.

The Risks of Long-Term Auto Loans

While long-term loans can be an appealing option because of their lower monthly payments, spreading out a loan results in borrowers paying more interest over the lifetime of that loan. In a study done by automotive-information website Edmunds, drivers with new-car short-term loans paid anywhere from 4.7% to 17.3% of their loan's final cost in interest alone, while long-term loan borrowers sometimes paid more than 30%.

Becoming upside down on a loan — which means you owe more money than the current value of your vehicle — could also be a consequence of choosing a long-term loan. Even as your car depreciates over time, you'll still be responsible for the payments of your loan under the terms agreed upon when you first purchased the car. If you get into an auto accident or decide to sell the vehicle before your loan is paid off, you might find that you still owe money.

As your vehicle ages, you could end up paying repair costs in addition to your loan payment. The typical car warranty only lasts around three years or 30,000 miles, whichever comes first. With a long-term loan, this means you could be balancing maintenance costs and monthly payments for longer than someone with a short-term loan.

What to Consider When Choosing Auto Loans

Your specific financial circumstances will likely dictate whether a long- or short-term loan is more attractive. Before deciding which time frame is the right fit for you, consider how the following factors could affect your loan:

• Your credit score
• Your monthly budget
• Lender
• Interest rates
• Price of your vehicle

These variables could lead you to a different car-loan length than the average, whether you need longer terms to spread out monthly payments or shorter terms to pay off your vehicle quickly.