So, 60- vs. 72-month car loan—which is better?
Unfortunately, with both loan terms, you’re at a much higher risk of going “upside down,” which means owing more than the car is worth over the life of the loan due to depreciation. But, if you are someone who likes to hold onto your car for a long time, this may not be an issue. Overall, if you’re choosing between the two, a 60-month loan is better because you’ll pay off the loan faster with a lower interest rate, and you’d be paying less overall for your car.
If you’d like to make more auto loan comparisons, this article on common car loan terms can help.
Is a 72-month car loan worth it?
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn’t an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.
Tips on taking a detour from a longer car loan term:
- Shop around. Many experts agree that it’s best to do some research before autographing auto loan forms. It also helps to get pre-approved beforehand so that you have a better idea of the loan amount you qualify for and monthly payment amounts. It’s also a good idea to look for a loan with a low APR to help lower interest payments.
- Refinance your long-term loan.If you’ve already pulled the trigger on a long-term loan, know that there’s still hope. You can look into refinancing your ride, and with good credit, you’re more likely to get a better interest rate. Our auto loan refinance calculator can help you decide if refinancing makes sense for your situation.
- Make a larger down payment. It’s a good idea to save at least 10% for a down payment for a used car and 20% for a new car. If you’re not sure if it’sbetter to get a new or used car, you may find this article to be helpful.
Note:If you absolutely cannot swing a shorter-term loan, and you’re in dire need of transportation, it’s okay to get a long-term loan to free up more cash every month for other necessities. However, it’s a good idea to put down more money on your monthly payments than agreed upon when you can. Just be sure that the additional amount goes towards the principal balance of your loan and that there aren’t any pre-payment or pre-payoff penalties.
What credit score do you need to get an auto loan?
Fun fact, it’s a myth that people have just one credit score. The truth is that you have many credit scores! One of the most common scoring models is FICO®, which offers a FICO® Auto Score that weighs many different factors into account—with credit utilization having the most impact.
How FICO® categorizes credit scores:
- Exceptional: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300 to 579
However, it’s important to note that not every lender uses the same scoring model for credit scores, and they have their own categorization methods. Typically, borrowers need at least a 661 to qualify for an auto loan. Keep in mind that lenders will also weigh income heavily into account when reviewing applications. The better your credit scores and income, the better your interest rate will be. If you’re looking for ways to improve your scores, this guide provides some helpful tips on how to do so.
Pssssst, just remember that applying for a car loan can typically involves a “hard” credit inquiry. This means that with a formal application, lenders reach out to the credit bureaus to get your score. Too many hard hits will raise a red flag for credit bureaus, which can lower your score. Typically, you can apply for a handful of places within a two-week timeframe before it does any damage to your credit.
What is a good interest rate for an auto loan?
Interest rates will vary based on credit score, term, location, income, debt, loan amount, and type of car you’re buying, to name a few. But, knowing the average auto loan rates can help give you a better idea of what to look for when shopping.
The average interest rate is 4.05% for new cars and 7.98% for used cars for borrowers with credit scores in the range of 661-780. Here are some helpful tips on applying for a used car loan.
FAQs
Is a 72-month car loan worth it? Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go.
What is a good interest rate for a 72-month car loan? ›
An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.
What is the rule of 72 on a car loan? ›
Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double. So, 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double.
What is the disadvantage of a longer 60 or 72 month auto loan? ›
Lenders usually charge higher interest rates for long-term auto loans. Because there's more time for a borrower to default on the loan, lenders consider longer-term loans to be a higher risk. To compensate for that risk, they often charge a higher interest rate when you stretch out the loan term.
What length of car loan is best? ›
NerdWallet typically recommends keeping auto loans to no more than 60 months for new cars and 36 months for used cars — although that can be a challenge for some people in today's market with high car prices. Ultimately, choosing the best auto loan term depends on balancing cost, affordability and your specific needs.
What FICO score do credit unions use for auto loans? ›
What credit score do auto lenders look at? The three major credit bureaus are Experian, TransUnion and Equifax. The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage.
Will auto loans go down in 2024? ›
Auto loan rates are expected to stop rising and possibly start descending in 2024, but they'll likely remain elevated in comparison to recent years (alongside the broader interest rates environment).
How much is a $20,000 car payment per month? ›
Payments would be around $377 per month. According to the results, it will take you 60 months, an interest rate of 5% of $2,645, to fully pay your $20,000 car loan. However, the monthly cost of a $20,000 car loan will depend on your repayment period and the annual percentage rate (APR).
What is a bad APR for a car? ›
People with excellent credit qualified for rates around 5.64 percent, while people with bad credit had an average new car rate of 14.78 percent. Rates for used cars were higher — 11.93 percent across credit scores. And the average rate for bad credit was a sky-high 21.55 percent.
Is it smart to do a 72-month car loan? ›
72-Month Car Loan Rates Are Typically High
A high interest rate means you'll end up paying more for the total cost of the car when all is said and done and you've made all your loan payments. Paying more money in interest has no benefit, and some people consider it to be wasted money.
Provided the down payment is $5,000, the interest rate is 10%, and the loan length is five years, the monthly payment will be $531.18/month. With a $1,000 down payment and an interest rate of 20% with a five year loan, your monthly payment will be $768.32/month.
How much is the car payment on $40,000 for 72 months? ›
If you take a car loan of $40000 at an interest rate of 4.12% for a loan term of 72 months, then using an auto loan calculator, you can find that your monthly payment should be $628. When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.
Is it better to have a short or long car loan? ›
A shorter loan term is better, as it helps minimize borrowing costs and the risk of being upside-down on your loan.
Why should you not finance a car for more than 4 years? ›
You'll Pay More Interest
Long-term car loans typically carry higher interest rates than shorter-term loans. And even if you can find a long-term loan with a low interest rate, making payments for seven or eight years will likely add up to more interest over time compared with a shorter-term loan.
What are the pros of taking a longer period car loan? ›
Beyond minimized payments, consumers can reap other benefits of long-term auto financing. Lower down payment – For those who would rather not pay a larger down payment, but have no problem making a monthly payment, purchasing a vehicle with long-term financing could mean a lower down payment requirement.
Can you pay off a 72 month car loan early? ›
There are no legal restrictions to paying off your auto loan early but it may come with fees from your auto loan provider. Paying off a car loan early can be a good option to save money and reduce your debt, but whether it is a good idea depends on your unique financial situation.
