If you’re in the market for a used car, you might be thinking about getting a loan. An auto loan allows you to purchase a car without paying the entire cost upfront. You pay the money back over a fixed period of time and pay interest on the amount you borrowed.
Lenders typically provide loans that range from 36 to 72 months, but longer and shorter loan terms are available. Even with the most generous lenders, there’s usually a maximum loan term you can choose. If you’re wondering how long you can finance a used car, here’s what you need to know.
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How Many Years Can You Finance Your Used Car?
Every lender has different rules around how long you can finance a used car. You might find that some lenders cap loan terms at 84 months, while others will give you a loan for up to 96 months. Historically, used car loans had 72-month limits. But as used cars gained popularity, it prompted lenders to began offering loans of 84 months and even longer, to meet consumer demand.
Is There a Limit to How Long You Can Finance a Used Car?
There's no universal maximum loan term for a used car. However, lenders and banks typically follow common guidelines, especially as it relates to age and mileage.
For example, you usually can't finance a used car older than 10 years with a five year loan. Similarly, you might not be able to finance a car with 150,000 miles for more than three years.
The only way to know how long you can finance a used car is to read your lender's used car guidelines, or speak to a representative.
Short vs. Long Car Loan Terms
Consider several factors before financing a used car, including the number of months over which you plan to repay the loan. The two types of car loans are short and long term. Depending on your lifestyle, budget, and spending habits, one term might suit you better than the other.
For example, if you like to drive the latest cars with the latest features, a short-term loan might be ideal. If you enjoy the idea of making memories with the same car for as long as it serves you, then a long-term loan might be more suitable.
Short Used Car Loan Terms: Pros and Cons
Short used car loan terms operate on a time frame that's usually between 12 and 60 months. The benefits of this finance period include:
- Refinancing: One of the best ways to improve your credit score is to make consistent, large payments. By making larger payments over a shorter loan term, your credit might improve, and you may be able to refinance to get a better interest rate.
- Lower interest: Paying less interest over the life of the loan is why many people choose short-term loans.
- Paying off the loan early: By getting a short-term loan that's no longer than five years, you'll have more financial freedom in the long run. Further, the more money you pay monthly, the sooner you'll pay off the loan.
While the idea of a short used car loan might seem right for your plans, keep in mind these potential downsides:
- Less room for budgeting: Although short-term car loans are great ways to pay off your debt quickly, you must adhere to a strict financing plan. If something unexpected happens and you need a significant amount of money, you might find yourself in a financial bind because of the loan's high monthly payment.
- Higher monthly payments: You must spend more money each month to pay off your used car loan over a shorter period. A larger down payment can allow you to lower the monthly payments exponentially.
Long Used Car Loan Terms: Pros and Cons
Long used car loan terms usually range from 72 to 85 months or longer and offer customers several perks, including:
- Lower monthly payments: One of the biggest perks of long used car loan terms is payment flexibility. Paying off your car for an extended period means lower monthly payments.
- More savings: Smaller monthly payments allow you to save more money in the bank. If you put enough away in a savings account, you might pay off the loan early thanks to the interest gained on the account.
Despite lower monthly payments, payment flexibility, and ongoing cash flow, long used car loan terms come with a few cons to consider, including:
- Depreciation: Cars depreciate as soon as you drive them off the dealership lot. While used cars don't depreciate as quickly as new ones, their value declines over time. That's why the longer it takes you to pay off your car, the less value it'll have. If its value falls below what you owe on the loan, you'll be upside down, which makes it difficult to trade in your car.
- More interest: Longer car loans usually come with higher interest rates, as the longer the loan, the more time that interest has to grow. You might pay more in the long run than you originally planned. To understand the amount you'll pay, ask your lender for the interest rate.
Elizabeth Rivelli
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
FAQs
Typically, your term is anywhere from 24-96 months (2-8 years) – you get to choose what works best for you.
How many months should I finance a used car? ›
NerdWallet recommends financing new cars for no more than 60 months and used cars for no more than 36 months. These maximums can help you avoid some of the negative outcomes of long-term loans.
What's the longest you can finance a used car? ›
Maximum Length for Used Car Financing
Charles lenders or banks might not consider a pre-owned vehicle that has over a certain amount of miles on the odometer or if it's a certain amount of years old. Most loan terms last anywhere from 24-84 months, but you'll have to contact your lender to get an exact number.
How long should I expect a used car to last? ›
In general, most modern cars can cross 200,000 miles without any major issues, provided the vehicle is being well-maintained. Considering that an average person drives 10,000-20,000 miles per year, this will account for roughly 15 years of service.
How much is a $30,000 car payment for 5 years? ›
Provided the down payment is $5,000, the interest rate is 10%, and the loan length is five years, the monthly payment will be $531.18/month. With a $1,000 down payment and an interest rate of 20% with a five year loan, your monthly payment will be $768.32/month.
Is it smart to do a 72-month car loan? ›
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go.
Is a 96 month car loan bad? ›
If you choose a 96-month car loan, then you'll end up paying significantly more overall due to the higher interest rates. You also get fewer options, as 96-month car loans aren't as popular as 72-month loans. This could be an issue if you have your heart set on a certain vehicle.
Is financing a car for 84 months bad? ›
The older the car, the more costly the repairs are. With an 84-month term, there's a much higher chance that you'll need to decide whether to replace or repair your vehicle while paying back the loan. If you have a tight budget and low emergency reserves, it could put a big strain on your budget.
What is a good APR for a car? ›
Generally, a good APR for a car loan might look something like this: Excellent Credit (750+): 3% or lower for new cars, 4% or lower for used cars. Good Credit (700-749): 4-5% for new cars, 5-6% for used cars. Fair Credit (650-699): 6-7% for new cars, 7-8% for used cars.
Why should you not finance a car for more than 4 years? ›
A longer loan term means you'll get a lower monthly payment, but you'll also pay more in interest. A shorter loan term is better, as it helps minimize borrowing costs and the risk of being upside-down on your loan.
There's no rule to how many miles on a used car is too much, but by attempting to stick to the 12,000 miles per year rule is a great place to start. Find out how old the car is, multiple the number of years by 12,000, and if the number on the odometer is significantly higher than that, some concern might be warranted.
Is a 20 year old car too old? ›
Additionally, maintenance costs can quickly add up as cars age. Parts are harder to find, and labor is more time-intensive. If these concerns make you uneasy, avoid cars over 20 years old. This rule of thumb may help ensure your vehicle choice is still safe, reliable, and affordable.
At what mileage should I sell my car? ›
It's a good idea to sell your car before it hits 60,000 miles if you don't want to spend a lot of money on repairs and replacement parts. During this mileage bracket, your car should be about five years old, meaning it'll still command a substantial amount.
What happens if I pay an extra $100 a month on my car loan? ›
Keep in mind that your actual monthly car payment won't change even if you pay extra for a period of time. You'll just repay the loan sooner and save some interest.
Is $2000 a good down payment on a car? ›
If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
How much is a 25k car payment? ›
Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
Is it wise to finance a used car? ›
It may be easier to secure a loan for a new car than it is for a used car, and new car loans often come with lower interest rates. Used cars can be a good fit if you're on a budget and they generally cost less to insure; however, interest rates for used car loans are often higher than for new car loans.
What is the rule of 72 on a car loan? ›
Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double. So, 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double.
How long should I wait between auto loans? ›
Waiting at least six months into your loan term provides more time for your credit score to rebound from any temporary drops. If your goal is to lower the interest rate and monthly payment, it makes sense to wait until your credit score enables you to qualify for a lower rate than your current one.
What is a good credit score to finance a used car? ›
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
