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When getting a new or used car loan, one decision you’ll make is how long to finance the car. A car’s loan term, or how long you have to repay the loan, affects everything from your monthly payment to how much interest you pay overall.
The most common car loan terms are 24, 36, 48, 60, 72 and 84 months, but some lenders also offer 12-month and 96-month car loans. While car loan terms are usually in 12-month increments, there are lenders willing to offer other options if needed by a borrower.
According to consumer credit reporting company Experian, the average auto loan term in the fourth quarter of 2023 was 67.87 months for new cars and 67.40 months for used cars. The average car lease was 35.98 months.
What to consider when choosing a car loan term
Often, car buyers focus mainly on a car loan’s monthly payment. Making sure you can afford the payment each month is important, but so is weighing that against other factors like the total amount of interest you’ll pay.
The following example shows the difference loan term makes when comparing the same car loan — a $35,000 loan with 9% APR and no down payment. It doesn’t reflect the fact that usually the rate increases the longer your term goes.
Comparing the cost of auto loan terms
Auto loan term | Monthly car payment | Total interest cost |
|---|---|---|
24 months. | $1,599. | $3,375. |
36 months. | $1,113. | $5,068. |
48 months. | $871. | $6,807. |
60 months. | $727. | $8,593. |
72 months. | $631. | $10,424. |
84 months. | $563. | $12,302. |
Based on a $35,000 car loan with a 9% APR and no down payment or trade in. | ||
» MORE: Auto loan calculator: Compare different loan terms
How loan term affects your car payment
The longer you stretch out an auto loan, the lower the monthly payment will be. Since the full loan amount is spread over a longer period of time, it’s divided into smaller loan payments. There can be positive aspects for both long-term and short-term auto loans.
Choosing a longer auto loan term with lower payments might enable you to buy a more reliable car at a higher price. It could also make it possible to qualify for a car loan that will help you establish or rebuild credit—as long as you make the payments on time.
Also, if you’re in a financial position to afford the higher payments of a shorter-term car loan, and you go that direction, there are benefits. Along with saving on interest costs, paying off the loan in a shorter time frame might give you a break from car payments before taking out another auto loan.
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The longer your loan term, the more interest you will pay
Most auto loans use simple interest. That means your payment amount will be the same each month, with a portion going toward paying down your principal balance and the rest to paying interest.
Unless you pay more than the required monthly payment and ask the lender to apply it to principal, the portion of your payment that goes to principal doesn’t change. The interest amount you pay each month does vary and is based on your remaining principal balance.
With this structure, a long-term loan with lower payments means you’re paying down the loan’s principal more slowly and accruing interest over a longer period of time. Extending a car loan even a year or two can significantly increase the overall amount of interest you pay.
For example, our comparison chart above shows that for a $35,000 car loan with a 9% APR, going from a 60-month loan to an 84-month loan would mean paying $3,700 more in interest.
» MORE: Are long-term auto loans a good or bad idea?
The length of your loan and negative equity
The longer you drive a car, the more it depreciates in value. At some point you may have negative equity, which means you still owe more on the car than what you can get by selling or trading it in. This is also called being upside down or underwater on a car.
Longer loan terms increase the risk of having negative equity at some point, which isn’t necessarily a problem unless you decide to sell or trade in a car before it’s paid off. If the amount you receive for the car doesn’t fully cover paying off the loan, you would need to pay the difference. This could mean paying cash or rolling the negative equity into your next car loan, which isn’t an ideal way to start a new loan.
What’s the best auto loan term?
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. Long-term auto loans might help you afford a car, but they can cost you more in the long run. Short-term loans will cost less overall, but wouldn’t be a wise choice if you can’t afford the monthly payments and fall behind.
What’s important is realizing that the auto loan term you agree to can make a big difference in what you pay monthly and in total. Instead of simply accepting the loan term offered by a lender or dealership, ask to see other terms or use an auto loan calculator to compare for yourself. Then choose the auto loan term that makes the most sense for you.
