How Long Should Your Auto Loan Last?

First Service Credit Union
8/1/2018 12:00:00 AM - 4 min. read

How Long Should Your Auto Loan Last?

When applying for an auto loan, lenders will typically ask you to provide information about both the vehicle and your finances. This helps them decide what loan terms to offer. Generally speaking, the higher your credit score, the lower your interest rate will be. In these cases, lenders will be more willing to offer long-term auto loans of 60 – 84 months. Usually, the number of months you have to repay your loan will directly impact the interest rate and the total amount you will pay for the vehicle. Both will increase as you add more time to your loan term.

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Pro-Tip: For many vehicle shoppers, their monthly payment amount is the most important factor when comparing their options. If this is important to you, find an online auto loan calculator that allows you to see sample payments for loans at different term lengths.


Common Auto Loan Terms

There was a time when 36-month to 60-month auto loans were the standard. As vehicle prices have risen over the years, the response from lenders has steadily driven the demand for longer terms. In March of 2020, the average auto loan length in the United States passed the 70 month mark. As you're shopping for a new car or truck, you're most likely to encounter the following common loan terms.:

  • 24 months (2 years)
  • 36 months (3 years)
  • 48 months (4 years)
  • 60 months (5 years)
  • 72 months (6 years)
  • 84 months (7 years)


Pros and Cons of Long-Term Auto Loan

When choosing between long- or short-term loans for your new car, what you’re really deciding is whether you’d prefer to have a lower monthly payment for a longer period of time or pay less overall for your vehicle. Each option has its own benefit, so it’s important to understand your financial goals when choosing which will work for you.

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Pro-Tip: Try to never owe more on your car at a given point than what the vehicle is worth. Making a larger down payment is a way to reduce your risk of experiencing this regardless of your auto loan term length. However, you are less likely to have to worry about it if you have a short-term loan.


4 Questions to Ask Before Signing a Long-Term Auto Loan

What to Ask before Choosing Auto Loan Term

Lower monthly payments can make a long-term auto loan sound tempting. However, there are some additional questions you should ask before you make a final decision.

#1 How Much Will I Pay in Interest?

Take a close look at your interest payments when considering a longer car loan. Typically, your rate will increase along with the duration of your term. Likewise, the total amount of interest you pay over your time for your car will increase as the term gets extended. Be aware of these extra costs, and factor them into your overall financial plan for car ownership.

#2 How Long Will I Keep My Car?

On average, Americans keep their cars for about six years. If your loan is longer than six years, consider the depreciation of the vehicle and how much you might owe when it comes time to sell. Likewise, consider the average lifespan of your car. According to Consumer Reports, most cars don't last much longer than eight years or about 150,000 miles, so it's important that your car can match the length of your loan.

#3 Is Warranty Coverage Available?

Extended warranties may prolong the life of your vehicle, especially if you’re buying a new car or truck. Standard warranties can last anywhere from three to five years, and they may make maintenance more affordable. Many additional coverage options are quite beneficial, but they can add to the bottom line of your loan. Ask questions and do your research from the start so you'll understand how to ensure the benefits of such a program over time will outweigh the cost.

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Pro-Tip: Many lenders offer warranties that are loaded with contingencies and conditions that may keep you from experiencing all of the benefits you expect. Be sure to ask your lender ahead of time how to take advantage of your plan.

#4 Are There Early Payment Penalties or Fees?

If you agree to a long-term loan for your car but plan on paying it off sooner, there may be a catch. Some car loans include early payment penalties or fees in the fine print, so be sure to check before finalizing your loan.


Tips for Shortening Your Auto Loan

If you want to keep your monthly payments low but prefer a shorter loan term, here are some tips to help you get the best of both worlds:

Choose a Less Expensive Vehicle

When choosing your next vehicle, try not to get caught up in what your friends and neighbors are driving. Instead of shopping for a car that’s going to impress the people around you, shop for one that will help you achieve your goal of lower monthly payments – even with a short loan term. This can free up funds for things like paying off debts, building your savings, or working toward any number of other financial goals you may have.

Make a Larger Down Payment

Paying more upfront for your next vehicle will reduce the amount you have to borrow and, in turn, lower your monthly payments. A larger down payment can save on interest over the course of your loan and allow you to pay your vehicle off sooner.

Think about Refinancing

If you already have an auto loan but aren’t sure it’s the best option for your current situation, consider refinancing your loan. Auto refinancing allows you to replace your current loan with a new one based on new terms that you can select. The payments and length depend on your car, lender, and credit, but can be a reliable way to decrease your loan length.

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Borrowing with First Service

At First Service, our mission is to provide financial products and services that enhance our members’ lives. That’s why we offer auto loans with competitive rates11 , flexible terms, and no payments for up to 90 days94 . We also allow you to get pre-qualified while you shop around, giving you up to 60 days to choose the right vehicle to go with the perfect loan.

If you’re thinking about getting a new vehicle, apply online in minutes and experience the First Service difference for yourself.

[11] New & Used Auto Loans - Rates: APR = Annual Percentage Rate. Loans subject to credit approval. Rates may differ depending on borrower creditworthiness and underwriting factors. Rates reflect discount of up to 80 basis points for GAP, Warranty, and all payment protection products. APR cannot be discounted below 5.79%. Vehicles more than six model years in age or with mileage 100,000 miles or more will be subject to an additional 100 basis points on the rate. Current First Service loans are not eligible for cash offers, complimentary insurance, or other promotions. Purchase of payment protection products is not required.

[94] No Payments for 60 - 90 Days: This is a limited time offer and subject to change at any time. Subject to credit approval. Interest will accrue during the deferment period.