Is 7 Years Too Long for a Car Loan?

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Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - November 5, 2020

You’re unique, and so is everyone else! How long you want your auto loan can be dependent on your personal circumstances and simply what you qualify for. But if you’re not sure what loan terms you should aim for and your credit score isn’t the best, we’ve got some suggestions.

Considering a 7-Year Car Loan

For borrowers, considering a seven-year car loan, which is an 84-month loan term, isn't always a bad thing. However, you have to think about both your auto loan as a whole and your credit situation.

Most borrowers are concerned with what kind of vehicle they want, the interest rate, and the monthly payment. Often, car buyers ignore the length of the loan until the very end of the financing, and many stretch their loan terms to lower their monthly payment, but this isn’t recommended for bad credit borrowers.

Stretching your loan term to seven or even 10 years is probably too long for an auto loan because of the interest charges that stack up with a higher interest rate.

To illustrate, say you take on a $10,000 car loan for seven years with a 13% interest rate (a common rate for bad credit borrowers). If you make every scheduled payment over those seven years, you pay over $5,200 in interest charges.

However, with a five-year loan term, you pay around $3,600 in interest charges – that’s $1,600 in savings.

While extending your loan term does lower your monthly payment, paying over $15,000 for a $10,000 vehicle probably doesn’t sit very well with many car buyers.

If you have good credit and you qualify for a low interest rate, then the interest charges may not be that big of a concern on a seven-year loan term. You can play around with auto loan amortization calculators with different loan amounts, interest rates, and loan lengths to see how much you could really be paying for a vehicle.

How Long Should My Auto Loan Be?

The old rules on how long your car loan should be are becoming harder and harder to live by due to the rising prices of vehicles over the years.

Many financial experts in the past have stated that you should abide by the 20/4/10 rule: put 20% down, finance for no more than four years, and all car expenses shouldn’t account for more than 10% of your gross income. But according to data, many borrowers aren’t following that old adage.

Seven-year loan terms are becoming more common as the prices of vehicles keep rising, but that doesn’t mean it’s a great idea with bad credit.

According to Experian’s State of the Automotive Finance Market report covering the second quarter of 2020, the average loan term for borrowers who financed new cars across the credit score spectrum is around six years, or 71 months. For used vehicles, the average loan amount for everyone is around 65 months, or about five and a half years.

For borrowers with credit scores below 660 (which is a typical bad credit starting point), the average loan term is around 60 months for used cars. If you go with a seven-year loan term, that’s two more years of paying interest than the average borrower.

If you’re struggling to afford the monthly payments on an auto loan that’s over five years, consider a less expensive vehicle instead of stretching your loan out.

If you’re set on getting a specific car but can’t quite afford the payments without extending the loan out, then save for a large down payment. Down payments are a great way to lower your monthly payment and help you save money throughout your loan term.

Long Car Loans + High Interest Rate = Bad News

Auto loans almost always use a simple interest formula, which means you’re charged interest daily on the remaining balance of your loan. The further you stretch your loan, the more you pay in interest charges; so, a longer loan term means paying for more for the vehicle overall.

If you have bad credit, you’re more likely to be assigned a higher interest rate than someone with a good credit score. Knowing this, aim for the shortest loan term you can afford if your credit has seen better days, and try to pay off the car loan as quickly as possible to save on interest charges and improve your credit score for a later date.

If you take on a seven-year, or 84-month, auto loan with an interest rate that’s in the double digits, it could mean paying way more than it’s even worth. Take your time to save up for a down payment, find the right lender, and choose a vehicle that you can comfortably afford each month so you don’t have to break the bank or extend your loan term.

Need Help Finding the Right Auto Loan?

If you’re considering a car loan that’s 84 months, consider a less expensive vehicle instead. If you have great credit and can qualify for an interest rate that’s really low, then you don’t need to be as worried about interest charges.

Until your credit score is great, play your next auto loan smart. Go for a car that you can easily afford, and one that can repair your credit so you can qualify for lower rates next time around.

Subprime auto loans can do just that for you. These lenders assist borrowers in all sorts of unique credit situations, and they report their loans so you can build credit.

Here at CarsDirect, we’ve produced a network of dealerships that work with subprime lenders. Get started by filling out our free car loan request form, and we’ll match you to a dealer in your local area.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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