What’s the Average Length of a Car Loan?

Drinking morning coffee while driving to work

Experian research finds the length of auto loans on new and used vehicles has reached new all-time highs, with the average term for new-car financing just under 72 months.

The trend reflects the growth in popularity of 72-month and 84-month auto loans, terms that offer manageable monthly payments but end up costing buyers considerably more in total interest than more traditional 48-month or 60-month auto loans.

Average New-Car Loan Lengths Increase

The latest Experian State of the Auto Finance Market report found the average term for new-car loans—the number of months required to repay the loans—increased by more than two months (2.37 months) to nearly 72 months overall, from the second quarter (Q2) of 2019 to Q2 2020.

When new-car borrowers were segmented by credit score, average new-car loan terms increased across all groups from 2019 to 2020. And, for the first time ever, all but top-tier "super prime" borrowers (those with credit scores ranging from 781 to 850) saw average loan terms exceed 72 months.

Average New-Car Loan Repayment Term in Months, by Credit Score Tier
Credit Score TierAverage Loan Term (Months) Q2 2020Average Loan Term (Months) Q2 2019% Change
Super prime (781 - 850)66.8863.175.9%
Prime (661 - 780)73.0470.473.6%
Nonprime (601 - 660)74.2873.211.5%
Subprime (501 - 600)73.3072.900.5%
Deep subprime (300 - 500)72.4672.340.2%

Source: Experian State of the Auto Finance Market

Average Used-Car Loan Lengths Grow Too

Average used-car loan terms increased as well, but by slimmer margins than those for new vehicles, lengthening by roughly two weeks (0.48 months), from 64.82 months for the Q2 2019 to 65.30 months in Q2 2020.

Comparison of used-car loans by credit score tier showed fairly modest growth in loan terms among borrowers in the upper credit score tiers (super prime, prime and nonprime), and reductions in term lengths for borrowers in the lower subprime and deep subprime tiers.

Average Used-Car Loan Repayment Term in Months, by Credit Score Tier
Credit Score TierAverage Loan Term (Months) Q2 2020Average Loan Term (Months) Q2 2019% Change
Super prime (781 - 850)63.3662.441.5%
Prime (661 - 780)67.0566.341.1%
Nonprime (601 - 660)66.0165.790.3%
Subprime (501 - 600)62.6462.88-0.4%
Deep subprime (300 - 500)59.1960.45-2.1%

Source: Experian State of the Auto Finance Market

Longer-Term Loans Gain Popularity

Comparison of data on both new- and used-car financing showed notable growth in the popularity of loans with terms greater than 73 months, which largely came at the expense of the popularity of 49- to 60-month loans.

New-car financing

The portion of new-car loans with terms of 85 to 96 months increased to 4.8% in Q2 2020, from 1.3% in Q2 2019, while the percentage of loans with terms ranging from 73 to 84 months also rose, to 35.1% from 31.1%.

Accompanying those increases was a reduction in the portion of new-car loans with terms ranging from 49 to 60 months, which fell to 15.7% from 19.7% in Q2 2019, and a lesser decline in the portion of loans with 61-to-72-month terms, which fell from 40.6% in 2019 to 39.9% in Q2 2020.

Used-car financing

A comparison of used-car loan terms revealed similar growth in popularity among the portion of used-car loans with terms of 73 to 84 months, which increased to 20.6% in Q2 2020, from 18.7% for the same period in 2019. The percentage of used-car loans with terms from 49 to 60 months fell concurrently, to 21.2% in Q2 2020, from 22.6% in 2019.

Percentages of used-car loans with other term ranges fell only slightly from 2019 to 2020:

  • Used-car loans with terms of 37 to 48 months slid to 9.1% in 2020 from 9.3% in 2019.
  • Used-car loans in the most popular term range, 61 to 72 months, inched down to 43.4% in 2020, from 43.5% in 2019.

What Is the Average Term Length for a New Lease?

In contrast with loan terms, auto lease terms fell from Q2 2019 to 2020, albeit very slightly. The overall average lease shortening from 36.76 months in Q2 2019 to 36.66 months for the same period in 2020.

Segmented by credit score, changes in lease terms broke out as follows:

  • Among super prime borrowers, the average lease terms slipped to 35.87 months in Q2 2020 from 35.98 months a year earlier.
  • Average lease terms for prime borrowers ticked down from 36.96 months in 2019 to 36.92 months in 2020.
  • Among nonprime borrowers, average lease terms remained unchanged, at 37.40 months, from Q2 2019 to the same period in 2020.
  • Subprime borrowers saw the largest reduction in average lease term—declining by 0.25 months (or roughly one week), from 37.46 months in Q2 2019 to 37.21 months in 2020.
  • Deep subprime borrowers were the only group that saw lease periods lengthen: The average lease term for those consumers extended very slightly, from 37.23 months for Q2 2019 to 37.35 months for the same period in 2020.

How Longer Auto Loan Terms Can End Up Costing You More

For car buyers, the main appeal of longer auto loan payment terms is lower monthly payments. For lenders, the advantage of these "affordable" loans is collecting significantly greater amounts in interest: No matter what interest rate you're charged, a greater number of payments likely means you'll be paying thousands of dollars more in interest. And, of course, if you're carrying a high interest rate, the additional amount you pay on a longer-term loan can add up to even more.

Consider the following comparison of total purchase costs for new cars, based on a fairly moderate interest rate of 9% APR. While the monthly payment on an 84-month loan is roughly two-thirds of that on a 48-month loan, the total interest cost for the longer loan is more than 80% greater.

Total Financing Costs by Loan Term ($28,000 New Vehicle, $2,500 Down, 9% APR)
Loan Term (Months)Monthly PaymentTotal Interest PaymentsTotal Loan PaymentsTotal Vehicle Cost
Loans are for a new vehicle priced at $28,000, with a down payment of $2,500 (total financed amount $25,500). Loans carry an APR of 9%, with payments made monthly. Calculations do not reflect sales tax, which is typically included in financing. Calculations also do not correct for numerical rounding over the life of the loan, which typically results in the final payment being lower than previous installments. Total vehicle cost denotes down payment plus financed portion of the purchase.

Source: Experian

When considering various auto loans offers, calculating the total cost of the vehicle and the total interest you'll pay is straightforward: Multiply the monthly payment by the total number of payments to get the total amount you'll pay on the loan. From that amount, subtract the amount you're borrowing to calculate your total interest cost.

To get the total vehicle cost, add the amount of your down payment to the total you'll pay on the loan.

Along with this considerably greater expense, there are other drawbacks to long-term car loans, such as the possibility you'll end up owing more on the vehicle than it is worth before the loan period is over. That, in turn, could mean your auto insurance policy wouldn't cover the balance of your loan if the car were totaled in an accident.

How to Choose the Right Auto Loan Term for You

When considering an auto loan, it's important to understand the role loan term plays in balancing the amount of the monthly payment against the total cost of the loan—and to determine how much car you can really afford, and whether the "savings" you'll see with lower monthly payments are worth the long-term interest charges.

If manageable payments are pulling you toward an auto loan with a term greater than 72 months, here are some ideas for rethinking the purchase, and perhaps steering toward a loan with a shorter payment term:

  • Consider a used vehicle. New vehicles are notorious for losing significant market value within the first year after purchase, so one that's a year or two old may come with a significantly lower sticker price. Many are even still under their original manufacturer warranties.
  • Increase your down payment. If you can add another 5% to 10% of the vehicle cost to your down payment, you'll reduce the amount you have to borrow—perhaps making the payments on a shorter-term loan more practical for you.
  • Get the best deal you can. Always apply to multiple lenders when seeking an auto loan to be sure you get the best interest rates available to you, and be prepared to drive a hard bargain when negotiating purchase terms.

If the interest rates you're offered turn out to be higher than you'd like and you can afford to wait six months to a year before making your purchase, consider taking steps to strengthen your credit scores. Auto lenders, like other creditors, typically use credit scores to help set the interest rates they charge, so building up your credit score could mean lower interest rates. Lower interest rates mean lower monthly payments, which could help you afford a loan with a shorter payment term.

The growth in popularity of longer-term auto loans isn't a trend all car buyers should want to be part of. If you're planning to buy a car, look past the longer-term financing options many dealers are touting, and try to find a shorter-term loan that meets your needs.