How Long Are Car Loans? What You Need to Know
How Long Are Car Loans? What You Need to Know
Posted on March 13, 2023
How long are car loans? Is there a specific time period? Is there a ‘best’ term for an auto loan? Can you pay the loan off early if you need to?
We've got the answer to each question right here in this article!
How Long Are Car Loans on Average?
Auto loans are typically for between 3-7 years but can be longer. As new car prices continue to increase, so do auto loan terms. It’s more affordable each month to extend a higher amount over a longer period than it is to pay more each month.
But. You have to bear in mind that the longer the loan term, the more interest you’ll pay.
Most auto loans are simple interest loans. This means you pay interest on the principal, the amount you borrow, at a set rate. The interest is calculated daily so the longer the loan period, the more interest you’ll pay.
Not that long ago, an auto loan would be for anywhere between 36 or 60 months. Now car prices are much higher, we are increasingly seeing 84 and even 96 month loans.
These aren’t suitable for everyone but they are an option if you need to borrow a lot while keeping the monthly payment sensible.
Is There a Best Car Loan Length?
The ‘best’ auto loan term depends entirely on your personal circumstances. If you can afford a higher monthly payment over a shorter term, you’ll pay less interest than you would over a longer term with the same interest rates.
The key thing to check is the rate. Some lenders offer higher rates on shorter loans and lower rates on longer loans. You’re going to have to check a loan calculator to see which makes more financial sense for your situation.
Some people don’t have the luxury of paying more each month, so a longer term works. Others will do whatever it takes to minimize the amount they pay in interest so will prefer to pay more each month.
Can You Pay Off a Car Loan Early?
You can settle the auto loan early if the lender agrees. Most standard auto loans will allow overpayment, bulk payments and early settlement. Some will have an early repayment penalty for the first year and then allow you to repay whenever you like.
Some specialist auto loans will have early repayment penalties.
You’ll have to check your loan paperwork to see what yours includes. It should have been made clear at the time of signing but will be mentioned in the terms somewhere.
Calculating the Best Car Loan Length
We recommend finding a car loan calculator and having a play around. Experiment with amounts, terms and monthly payments until you find a situation you can live with. We have a payment calculator of our own. Check that out here.
Once you find something, apply for loan preapproval using those terms to see if you would qualify. If you do qualify, you can go from there to research, save down payment and eventually apply for the loan.
If you're ready for a car loan, we'd love to help with that! simply fill in the form below to get started.
Car Loan Pre-Approval