How Long Can You Finance a Used Car?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - October 9, 2018

The average used car loan term in the second quarter of 2018 was over 60 months, according to Experian, and the average length of auto loans is expected to keep increasing. Even though 60 to 72 months is the average loan term, just how long you want to finance a used car depends on what you can afford and how long you plan on keeping it – there’s no specific amount of time you have to follow to finance a used vehicle, since it’s all subjective.

Auto Loans are Getting Longer

Since 2017, experts predicted that the average car loan length would continue to get longer. As of Q2 of 2018, Experian notes that over 60 percent of used auto loans are in the 60- to 84-month range – that’s anywhere from five to seven years. A lot can happen during that time, and you may not want to continue paying a car loan for almost 10 years. But if a longer loan term makes more sense for you financially, it isn’t all that bad.

What is the Maximum Length to Finance a Used Car?

While there’s no way to tell what the maximum length to finance a used car is, there are some general guidelines major banks follow. One of these is not being willing to finance a used vehicle that’s over a certain age and mileage. For example, Bank of America has a policy on financing used cars that states they don’t finance vehicles over seven years old and with more than 100,000 miles on them.

While each lender has different policies regarding used car financing, the general rule of thumb is that these banks aren’t willing to finance a vehicle close to a decade old for another five years or so. The only way you can know for sure is to contact your lender and read up on their car financing guidelines.

Pros and Cons of Long Used Car Loan Terms

Pros:

  • Lower monthly payment – Longer loan terms mean a lower monthly payment and more available income. Because you’re paying less each month, if your financial status changes for better or worse, it gives you a good medium. If you end up with more income the future, you can even increase your payment and pay off the car loan early.

Cons:

  • Interest – A longer loan term typically means a higher interest rate, and the longer the loan the more time that interest has to accrue. Lenders offer higher interest rates on used cars, and if it’s a long loan term it can be hiked up even more. Plus, you risk being underwater on the loan for longer.
  • Depreciation – The longer you keep a vehicle, the more it depreciates, although the rate of depreciation lessens as the car gets older. In addition, the longer the loan term, the more time your vehicle’s actual cash value is less than the loan balance – what’s known as being “upside down,” making it more difficult to trade in.

Pros and Cons of Short Used Car Loan Terms

Pros:

  • Lower interest expenses – The amount of interest you pay with a shorter loan term can make a big difference. But, in addition to paying less in interest expenses, the shorter loan term also means you can be upside down in the loan for a shorter period of time.
  • The car is paid off quicker – This may seem obvious, but your responsibility for paying off the vehicle isn’t spread over five years or longer. Once the car’s paid off, you immediately have more room in your budget.
  • Refinancing – Once your credit improves, you can choose to refinance for a better rate, and you can do this more quickly with a short-term loan because your vehicle spends less time being upside down (you typically can’t refinance the negative equity in a car).

Cons:

  • Higher monthly payment – Unfortunately, because you’re paying off the vehicle in a shorter amount of time, you end up paying more each month. But, you can lower your monthly payment with a down payment, which has more of an impact with a short-term loan.
  • Less room for error – If things go wrong and you need to adjust your budget, it could put you in a financial bind if your car payment is too high.

The Bottom Line

There’s no right or wrong length to finance a used car. The loan term that’s right for you can be as short as 24 months or as long as 84 months – it all comes down to your current financial situation and future plans for the vehicle.

If you’re ready to take on an auto loan, but worry you won’t get approved because your credit is poor, let CarsDirect help. We work with a network of special finance dealers that have the lenders available to work with people whose credit holds them back from a traditional car loan. Get the process started today by filling out our simple online auto loan request form now!

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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