How Long Should Your Car Loan Be?
Understanding loan terms, interest costs, and why shorter is usually better.
Ideal Loan Length: Financial experts recommend 48 months (4 years) for new cars and 36 months (3 years) for used cars. Avoid 72+ month loans whenever possible.
Common Car Loan Terms
How Loan Length Affects Your Costs
On a $30,000 car at 7% APR:
| Loan Term | Monthly Payment | Total Interest | Total Cost |
|---|---|---|---|
| 36 months | $926 | $3,336 | $33,336 |
| 48 months | $718 | $4,464 | $34,464 |
| 60 months | $594 | $5,640 | $35,640 |
| 72 months | $511 | $6,792 | $36,792 |
| 84 months | $453 | $8,052 | $38,052 |
The Real Cost of "Affordable" Payments
Choosing a 84-month loan over 36-month costs you $4,716 more in interest—enough for a nice vacation or a down payment on your next car.
The "Underwater" Problem with Long Loans
Cars depreciate faster than you pay them off with long loans. This means you can owe more than the car is worth—called being "underwater" or having "negative equity."
Example of Negative Equity
You buy a $35,000 car with a 72-month loan. After 3 years:
- • Car is worth: ~$18,000 (48% depreciation)
- • You still owe: ~$20,000
- • Negative equity: -$2,000
If you need to sell or trade, you'd have to pay $2,000 out of pocket!
When Longer Loans Make Sense
There are limited situations where a 60-month loan is acceptable:
- You're getting a 0% APR promotional rate from the manufacturer
- You have excellent credit and qualify for rates under 4%
- You're putting 20%+ down and plan to keep the car 10+ years
- You have investments earning more than your loan rate
Loan Length by Vehicle Type
New Cars
Maximum recommended: 60 months. Ideal: 48 months or less.
Used Cars (1-3 years old)
Maximum recommended: 48 months. Ideal: 36 months.
Used Cars (4+ years old)
Maximum recommended: 36 months. The car shouldn't outlive the loan.
If You Can Only Afford Long-Term Payments
If you need 72+ months to afford the payment, consider these alternatives:
- Buy a less expensive car: Find one that fits a 48-60 month budget
- Save for a larger down payment: Wait 6-12 months while saving
- Consider a quality used car: 2-3 year old vehicles offer great value
- Look into leasing: Lower monthly costs without long-term debt
Find Cars That Fit Your Budget
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