What Is the Longest You Can Finance a Car?
Explore how car loan terms, from typical to extended, shape your monthly payments, overall cost, and vehicle equity over time.
Car financing involves understanding the loan term, which is the duration over which a borrower repays a car loan. The length of this term directly impacts monthly payments and the total cost of financing. This article explains typical maximum durations for car loans, factors influencing their availability, and their financial implications.
Typical Car Loan Lengths
Car loan terms are expressed in months, commonly ranging from 24 to 84 months. While 60, 72, and 84 months are common maximum terms, some lenders may offer longer durations, such as 96 months. These extended terms are not universally available and depend on specific conditions.
The average car loan term in the first quarter of 2025 was 68.63 months for new cars and 67.22 months for used cars. Longer terms, like 72 months, have become common as they result in lower monthly payments, making vehicles more accessible. The availability of these longer terms depends on various factors related to the borrower and the vehicle.
Factors Affecting Loan Term Availability
Several criteria influence whether a borrower qualifies for a longer car loan term and which lenders offer them. A borrower’s credit score is a factor, with higher scores leading to more favorable terms, including longer loan durations and lower interest rates. Lenders assess creditworthiness to determine the risk associated with lending money.
Debt-to-income (DTI) ratio also plays a role, as lenders evaluate a borrower’s existing debt payments against their income to ensure they can manage additional loan commitments. A DTI ratio below 45% to 50% is preferred by auto lenders. Income stability and employment history further reassure lenders that a borrower has a reliable source of income for consistent payments.
The vehicle itself influences loan term availability. Its age, mileage, make, model, and overall condition are considered. For example, some lenders may not finance vehicles older than 10 years or with over 125,000 miles.
The loan-to-value (LTV) ratio, which compares the loan amount to the vehicle’s actual cash value, also impacts term availability. A higher LTV, indicating a larger percentage of the vehicle’s value is being financed, presents a greater risk to the lender. Different types of lenders, such as banks, credit unions, and dealership financing, may have varying policies regarding maximum loan terms and eligibility criteria.
How Loan Term Affects Payments and Total Cost
The chosen loan term directly influences both the monthly payment and the total interest paid over the life of the loan. A longer loan term results in lower monthly payments because the principal and interest are spread out over an extended period. For example, financing a $25,000 car at a 6% interest rate over 72 months might lead to monthly payments of $331. This can make a more expensive vehicle seem more affordable on a monthly budget.
Conversely, a longer loan term results in a higher total amount of interest paid. The extended repayment period means interest accrues for a longer duration, increasing the overall cost of the loan. For that same $25,000 car at 6% interest, a 72-month term could result in $3,865 in total interest, whereas a 48-month term might cost $2,546 in interest. While the monthly payment is lower with a longer term, the cumulative interest expense is higher.
Considerations for Vehicle Depreciation and Equity
Vehicles depreciate rapidly, particularly during their initial years. A new car can lose 16% of its value in the first year and 45% of its original value by the end of five years. This rapid decline in market value can have implications when coupled with a longer loan term.
A longer loan term can mean that the loan balance decreases more slowly than the vehicle’s market value. This situation can lead to negative equity, where the outstanding loan amount is greater than the car’s current worth. For example, if a car is valued at $15,000 but the loan balance is $18,000, there is $3,000 in negative equity. Being in a negative equity position can complicate selling or trading in the vehicle before the loan is fully paid off, as the owner would need to pay the difference to satisfy the loan. Reaching positive equity, where the car’s value exceeds the loan balance, can be accelerated by making a larger down payment or opting for a shorter loan term.