How Long Should My Car Loan Be?

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Even with poor credit.

By

Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - June 2, 2020

When you’re car shopping, the first thing on your mind is usually the make and model of the vehicle you want. But you should also be thinking about your loan terms, and how you can save the most cash while you’re still paying for the car.

Long Loan Terms Cost You More

Most borrowers are likely to want a nice vehicle with a low monthly payment, and many stretch their loans as far as they can to get to a certain price point. But long term, it could be costing you more money.

Additionally, a longer loan term can mean you’re more likely to have negative equity longer, which isn’t the greatest. Cars depreciate in value year after year, and the longer you take to pay it off, the more you risk being upside down longer on the loan.

Since most bad credit borrowers are going to qualify for higher interest rates than good credit borrowers, it’s in your best interest to finance for the shortest loan term you can. While extending your loan to the max can certainty lower your monthly payment, it means paying more in interest charges. And with a high interest rate, it could mean paying much more.

Average Car Loan Terms

The average loan term for an auto loan has been steadily increasing as vehicle prices rise. According to Experian’s State of the Auto Finance Market report from the fourth quarter of 2019, the average car loan term hit a fourth-quarter record high.

The average loan length for a new vehicle checks in at around 70 months for all credit score ranges, while used car loan terms averaged around 65 months. For bad credit borrowers, the average loan term for a used vehicle was around 64 months. Additionally, nearly 20% of all loan terms were between 73 and 84 months. Six to seven years is a long time to be stuck with a car payment!

However, if your only option is to finance for a longer loan than you’d like, putting cash down is a great way to avoid paying extra in the long run, and it lowers your monthly payment, too.

Lowering Your Interest Charges

A higher interest rate means more interest charges, and the longer you have the loan, the more interest charges you rack up.

Auto loans are almost always simple interest loans, meaning that you’re charged interest on the balance – not the total amount you financed. After each payment, your interest charges decrease every month until the loan is paid off.

If you do have a higher interest rate, putting money down can help. Not only are you lowering the amount you finance with a down payment, but you’re also lowering your monthly payment and the interest charges. You can also use the equity from a trade-in to help cover a down payment if you buy from a dealership.

If you're a bad credit borrower, your lender is probably going to require a down payment for you to be considered for financing. They’re likely to require a minimum amount, but you can always put down as much as you’d like to get the monthly payment you’d prefer.

Getting Into Your Next Car Loan

It's in any borrower's best interest to finance for the shortest loan term they can afford. The quicker you pay off the loan, the less you pay in interest charges. It’s not always possible to avoid higher interest rates, but you can decrease the interest charges by investing into the vehicle with a down payment, or simply making extra payments when you can.

If you’re in the market for another car, but you’re having trouble finding a lender to work with due to poor credit, look no further! Here at CarsDirect, we match bad credit borrowers to special finance dealers that work with subprime lenders. We’ve created a nationwide network of dealerships that help finance borrowers in all types of credit situations.

To get connected to a dealer for free, fill out our secure, online auto loan request form.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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