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What Is The Average Car Loan Length?


Purchasing the car of your dreams sounds like fun, right? We commonly see photos of friends and family posing with their new ride on social media. They seem satisfied with their purchase, and maybe even a little eager to show it off. But in reality, it took a lot of consideration to get to that point. 

Car buyers have to think with their brains, not their hearts, when making such a major purchase. Careful consideration over the car loan terms, specifically the length of the loan, is necessary to get to that #newride moment. 

If a new vehicle is in your plans, don’t get sucked into the excitement of the sale, agreeing to a loan length that might not be right for you. Instead, be a smart car buyer who knows exactly what loan length you need from the start. 

Average Car Loan Length

The average length of a car loan varies based on the type of car loan. New cars, which tend to be more expensive, come with longer loans on average. Used cars often have loans that are shorter in length (because they are less expensive, there is less to pay off throughout the life of the loan). 

A report from Experian says that average car loan lengths are increasing. In Q2 of 2020, the average loan length for new cars was 72 months. Meanwhile, used cars saw an average loan length of 65.3 months. 

But just because the average car loan is increasing doesn’t mean a longer car loan is right for you. There are several factors to consider before committing to a loan length. 

When Is A Longer Car Loan Better?  

A longer-term car loan may be the right option for a buyer who is insistent that they need a certain type of vehicle with a smaller monthly payment - and their financial circumstances are in a position that extending the length of the loan is the only way to accomplish that (meaning they don’t have the funds up front to put down a larger down payment to make monthly payments smaller). 

Pros of a Longer-Term Car Loan

  • Longer-term car loans mean a smaller monthly payment. 
  • You can purchase a more expensive vehicle if needed. 
  • The additional money in your budget from saving on a monthly payment could be used to pay down debts with higher interest rates (like credit card debt, for example). 

Cons of a Longer-Term Car Loan 

  • Longer-term car loans generally come with higher interest rates. 
  • You pay more interest throughout the lifetime of the loan. 
  • You are more likely to be “upside down” (or owe more to the lender than what the vehicle is worth) at the beginning of the loan
  • You may need to be paying for the cost of repairs while still paying off the vehicle.

When Is A Shorter Car Loan Better?

In most cases, a shorter car loan is going to be the most financially savvy option available. Shorter car loans can be accomplished by having the funds to make a larger down payment to the seller, choosing a more affordable vehicle, and paying for any extras (like sales tax, registration fees, extended warranties, or any other fees) in cash instead of wrapping them up with the loan. 

Pros of a Shorter-Term Car Loan

  • You will likely get a better interest rate. 
  • You will pay less in interest over time and less money overall. 
  • You are less likely to become “upside down” on the loan. 
  • Paying off the loan faster means that you are less likely to have to pay for vehicle repairs while making a monthly loan payment as well. 

Cons of a Shorter-Term Car Loan 

  • You may not be able to afford the car that you want. 
  • You will have to shell out a higher monthly payment which might be uncomfortable on your budget. 

Loan Length Options With OUCU 

Everyone’s financial situation is different so the auto loan length that works best for your family member or friend won’t necessarily be the best loan length for you. You will need to carefully consider your situation - the type of car you are financing, how much money you can put down up front, and what monthly payment you are comfortable making. 

At OUCU Financial, our new auto loans range from 24 months to 84 months to cover the spectrum of financial situations. Recent used vehicles (no older than model year 2012) can be financed from 24 to 72 months, while older used vehicles (model year 2011 and older) are available for financing from 24 to 48 months. 

If you’re still unsure if a longer or shorter term auto loan is the right choice for you, our friendly lending team at OUCU can take a look at your finances and guide you in the right direction. Above all, we want our members to drive away with a car loan that is affordable for their budget while making that #newride a comfortable reality. 

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