How Is the Length of a Loan Determined on a Car Loan?

Think about your loan before you sign up.

Think about your loan before you sign up.

A car is usually your most expensive purchase besides your house. You may be looking for a new car and a new loan every few years, often as fast as you pay off your latest loan. You have several options for car loans, from auto manufacturer credit companies, dealerships or financial institutions like banks and credit unions. Interest rates will vary, with locale and with the type of financing. You always want to shop loan providers to find the best combination of interest rates and loan length for an affordable monthly payment.

Monthly Payments

What monthly payment you want or can afford generally helps determines how long your car loan is for. Other considerations are the total price of the car, whether it is new or used, your total debt and credit rating and the interest rate. You can get car loans for periods from 24 to 72 months on most vehicles.

Typical Lengths

Most car loans are 36, 48 or 60 months. Shorter loans usually require very high monthly payments. Most lenders are reluctant to make 72-month loans, except on very expensive vehicles. You're more likely to get a longer-term loan with a new or slightly used vehicle and many lenders won't make loans on low-value cars or those more than 7 years old.

Total Cost

Balance the length of the loan against the interest rate. The longer the term, the lower the monthly payments. Some dealers offer zero-percent interest loans but these often require higher down payments or other conditions. Longer term loans generally have higher interest rates, but offer lower payments. A 36-month loan at 5 percent on a $22,000 car will cost about $659 a month, but only $354 for 72 months. However, you'll pay about twice as much total interest on the longer loan.

Calculate and Negotiate

Use a loan calculator to help you work out the best deal before you negotiate with the dealer. Bankrate.com and CarsDirect.com offer free calculation programs to help you assess interest rates, loan length and other terms to decide what you want to pay monthly. Once you have a payment in mind, negotiate with the dealer or a financial institution for specific loan terms.

About the Author

Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.

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