What's the Average Car Loan Length?

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Article QuickTakes:

• What's the average car loan length?
• Why choose a loan that's longer than average?
• Why choose a loan that's shorter than average?
• How can you plan for your monthly payment?

When financing the purchase of a car, one of the important aspects of a car loan to consider is the loan length. Commonly called the loan term, it's the number of months you have to make payments before you've fully paid back the loan. Different loans come with different terms, depending on the type of loan and your specific needs.

A loan with an average term isn't always the better option, but knowing the average loan length can give you some useful context. Here's what to understand when you're deciding on a loan.

What's the Average Car Loan Length?

According to Experian, the average loan length for a new car was just over 69 months in the second quarter of 2021. For a used car, the average loan length was a little under 66 months.

Although a loan with a term near the average may be the right choice for some people, you might prefer a loan that's longer or shorter.

Why Choose a Loan That's Longer Than Average?

You might want a longer loan term so you can borrow a larger amount. A longer loan length gives you more time to pay off your car, and you may be able to cover a larger purchase this way.

Likewise, you might choose a longer loan so you don't need to make a big down payment. If you don't have a lot of cash on hand, you could decide to use a large loan with a lengthier term to cover a greater share of your new vehicle's cost.

Additionally, a longer loan length often gives you a lower monthly payment, which may make budgeting for it easier. A lower auto payment can free up money for other financial goals, like paying off a credit card or saving up for a down payment on a house.

Why Choose a Loan That's Shorter Than Average?

One major benefit of a short loan length is you may get a lower interest rate, reducing the cost of your loan. Plus, repaying your loan sooner means paying less interest in total than you would with a longer term loan. If your goal is to save money, you might be better off with a shorter loan.

A shorter loan term also allows you to build equity in your car faster, making it less likely that you'll end up owing more than the vehicle is worth. If you want to sell the car or trade it in at some point down the road, you'll be in a better position to do that if you don't have an underwater loan.

Even if you feel fairly confident predicting what your lifestyle and finances will be like for the next few years, it can be harder to picture your circumstances six or seven years ahead. Choosing a short loan length makes sense especially if there's a chance your situation could change in the long term.

How Can You Plan for Your Monthly Payment?

Whether your loan term is longer than the average car loan length, shorter than average, or right in the middle, you can prepare to repay your loan by creating a budget. Start by figuring out how much money you'll need each month for your car payment and for related expenses like gas, parking, insurance, and maintenance.

Consider setting up recurring payments from a bank account so you don't accidentally miss any due dates. Another option is to add a monthly reminder in your calendar that lets you know when it's time to send in your car payment.

If you don't already have an emergency fund, it might be a good idea to start one by putting some money in a savings account. You can dip into your emergency savings if anything unexpected comes up, like if you need to make surprise repairs or if you'll have trouble making a regular payment.

Knowing the average loan length can be helpful if you want to see how your loan compares. Just keep in mind that the average loan might not be the right choice for you. What matters is whether a loan is a good fit for your financial goals—not whether it matches the average.