What’s the average car loan length?

For a long time, three- or five-year car loans were the norm. But more and more people are choosing longer-term auto loans.

In the fourth quarter of 2021, the average loan term for new-car loans was nearly 70 months, according to the Q4 2021 Experian State of the Automotive Finance Market report.

There are a couple of possible benefits to getting longer-term loans, depending on your financial situation. But there are also notable risks to longer-term loans that may make a five-year car loan, or other options, a better choice.

• How long is a normal car loan?
• Is a 72-month car loan bad?
• Next steps: Consider alternatives to a long loan term

How long is a normal car loan?

In the fourth quarter of 2021, the average auto loan term was more than 69 months for new cars and over 67 months for used vehicles, according to the Experian State of the Automotive Finance Market report.

Those with bad credit tend to have longer loan terms on their new-car loans than those with good or excellent credit, according to the report. For new-car buyers with credit scores of 781 to 850, the average new-car loan term is nearly 65 months. For those with scores of 500 or lower, the average loan length climbs to just over 72 months.

People may choose longer loan terms for several reasons. Here are a few.

You’ll make smaller monthly payments

A longer loan term can mean lower monthly auto loan payments. For example, say you’re financing a $30,000 new-car purchase over five years with a 3% annual percentage rate, or APR, with no down payment in a state with no sales tax. Your monthly payments would be $539 each. If you were to opt for a seven-year loan, all other loan terms being the same, you’d make monthly payments of $396 — a difference of $143 per month.

But keep in mind that with a longer-term loan, you’re making more payments. For this example, you’d make 84 monthly payments on the seven-year loan versus the 60 payments with the five-year term. You’ll also pay more in interest overall with the longer loan.

It may free up cash you can use to pay off more-expensive debt

Let’s say you’re deciding between a 60-month car loan and an 84-month car loan. The smaller monthly payment that comes with the longer loan term may free up resources to pay down other high-interest debt more quickly. But this only makes sense if the interest rate on your debt is significantly higher than your car loan’s interest rate.

Say you’re buying that new vehicle at 3% APR, and you also happen to have a credit card balance of $10,000 with a 20% APR. If you choose the seven-year loan term on the car and apply the extra $143 that you’d have available each month to your credit card debt, you could save on interest overall. Because even though you’d end up paying more interest on the longer-term loan than on the shorter, you’d be able to pay off your higher-interest credit card debt in less time, potentially saving you more interest in the end.

Is a 72-month car loan bad?

Though many people seem to prefer longer loan terms, there are some good reasons to consider bucking this trend.

You’ll likely have heftier interest costs

A 72- or 84-month loan will likely leave you with a larger total interest payment than a loan term of 60 months or less. Take the $30,000, 3% APR car loan (with no down payment and no sales tax): You’d pay $2,344 in interest over a 60-month term. But with an 84-month loan at the same rate, you’d pay $3,301 in interest.

A longer loan term may also come with a higher interest rate.

You’ll likely have repair costs while paying down the loan

If your loan term is longer than 60 months, you could be making car payments long after your warranty has expired. Many new cars come with basic warranties that last three or four years and powertrain warranties that span five or six years. A car’s repair costs tend to increase with age, and if your warranty expires before the loan is paid off, you may face repair bills while still making monthly car payments.

A handful of automakers do offer slightly longer warranties. Kia, Mitsubishi, Hyundai and Genesis offer 10-year/100,000-mile powertrain coverage.

You could end up owing more on your car than it’s worth

A new car’s value can decrease by 20% or more in the first year. Once interest is factored in, this depreciation may mean that you temporarily have negative equity, or owe more on the loan than the car is worth. With a longer loan term, you build equity more slowly, and you could end up with negative equity for a much longer time period than if you had chosen a shorter loan term. This could make selling or trading in your car more difficult down the road.

If you have negative equity and want to trade in your vehicle, a car dealer may be able to roll the amount you still owe on your auto loan into your new car loan — but this will increase your monthly payment and the total amount of interest you pay on the loan. And if you want to sell your car, you may not be able to sell it for enough money to pay off your auto loan. This means you’d need to come up with the cash to pay your remaining balance on your auto loan.

Negative equity could also create a serious problem if your car is totaled in a collision. Collision insurance will typically only cover up to your vehicle’s fair market value. If you owe more on your loan than the car is worth, you could find yourself making payments on a wrecked car.

Next steps: Consider alternatives to a long loan term

Before getting a 72- or 84-month car loan, look into less-costly alternatives like leasing, buying a less-expensive used car, or delaying your purchase until you have money saved for a larger down payment. Going this route may help lower your monthly payment without the risks that can come with longer loan terms.