What Is the Longest Loan Term for a Car?

A car loan involves borrowing a sum of money repaid over a set period, known as the loan term. Understanding the loan term is important for anyone financing a vehicle, as it directly influences both the monthly payment and the total cost of the loan over time.

Defining Car Loan Terms and Their Length

A car loan term represents the total duration, typically expressed in months, over which a borrower repays the borrowed amount for a vehicle. Common terms include 36, 48, 60, 72, and 84 months. While many borrowers choose terms within this range, some lenders offer longer options. The availability of these very long terms is not universal and depends on several factors.

For new cars, terms of 72 or 84 months are widely available, with some financial institutions extending terms up to 96 months. For high-value vehicles or through certain credit unions, terms up to 120 months (ten years) may occasionally be found. Used car loans commonly fall within the 36 to 72-month range, with some lenders offering terms up to 84 or even 96 months.

Factors Determining Loan Term Availability

Several variables influence a borrower’s eligibility for a longer car loan term.

Borrower’s Creditworthiness

A primary factor is the borrower’s creditworthiness, indicated by their credit score and history. A higher credit score generally signals a lower risk to lenders, which can result in more favorable loan terms, including a longer repayment period and a lower interest rate. Conversely, a lower credit score might lead to fewer long-term options or higher interest rates.

Vehicle Characteristics

The vehicle’s characteristics also play a role. Newer, higher-value cars are typically more likely to qualify for extended terms compared to older or less expensive models. Lenders assess the vehicle’s age and mileage, as older cars with higher mileage pose a greater risk of mechanical issues and depreciation.

Lender Policies and Down Payment

Lender policies vary, with banks, credit unions, and dealership financing each having distinct criteria. The amount of the down payment also impacts eligibility. A larger upfront payment reduces the loan amount, making the loan less risky for the lender and potentially opening up options for longer terms.

The Impact of Loan Term on Your Car Loan

The chosen car loan term significantly affects the financial aspects of vehicle ownership.

Monthly Payments

A longer loan term results in a lower monthly payment because the total borrowed amount is spread over more installments. For instance, a $25,000 loan at a 3.00% APR extended from 48 to 60 months could lower the monthly payment by over $100.

Total Interest Paid

A longer loan term leads to a greater total amount of interest paid over the life of the loan, as interest accrues over an extended period. For example, that same $25,000 loan at 3.00% APR, when extended from 48 to 60 months, could result in nearly $400 more in total interest charges. A $25,000 loan at 5% interest over 60 months might incur around $1,800 in interest, while an 84-month term could increase that interest cost to approximately $2,800.

Negative Equity

A longer loan term also increases the likelihood of experiencing “negative equity,” or being “upside down” on the loan. This occurs when the outstanding loan balance exceeds the car’s current market value, which is common because vehicles depreciate rapidly. A new car can lose 20-30% of its value in the first year alone. Being upside down means if the car is totaled or sold, the owner would still owe money after the insurance payout or sale. This situation can also delay building equity in the vehicle, as the loan balance reduces more slowly than the car’s value declines.