If you’re in the market for a used car, you may be thinking about getting a loan. A car loan allows you to buy a car without paying the entire cost up front. You repay the money over a fixed period of time and pay interest on the amount you borrow.
Lenders typically provide loans ranging from 36 to 72 months, but longer and shorter loan terms are available. Even with the most generous lenders, there is usually a maximum loan term you can choose from. If you’re wondering how long you can finance a used car, here’s what you need to know.
Compare car loan rates here
How Many Years Can You Finance Your Used Car?
Each lender has different rules about how long you can finance a used car. You may find that some lenders limit the loan period to 84 months, while others will give you a loan of up to 96 months. Historically, used car loans have had a limit of 72 months. But as used cars became more popular, it prompted lenders to start offering loans for 84 months and longer, to meet consumer demand.
Is There a Limit to How Long You Can Finance a Used Car?
There is no universal maximum loan period for used cars. However, lenders and banks usually follow common guidelines, especially those related to age and mileage.
For example, you generally cannot finance a used car that is more than 10 years old with a five-year loan. Likewise, you may not be able to finance a car with 150,000 miles for more than three years.
The only way to find out how long you can finance a used car for is to read your lender’s used car guidelines, or talk to a representative.
Short vs Long Car Loan Terms
Consider several factors before financing a used car, including the number of months you plan to repay the loan. The two types of car loans are short term and long term. Depending on your lifestyle, budget and spending habits, one term may work better for you than the other.
For example, if you like to drive the latest car with the latest features, a short-term loan may be suitable. If you enjoy the idea of creating memories with the same car for as long as it lasts for you, then a long-term loan may be more suitable.
Short Used Car Loan Terms: Pros and Cons
Short used car loan terms operate for a period that is usually between 12 and 60 months. The benefits of this financial 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 may improve and you may be able to refinance to get a better interest rate.
- Lower benefits: Paying less interest over the life of the loan is why many people choose short-term loans.
- Pay off the loan early: By obtaining a short-term loan that does not exceed five years, you will have more financial freedom in the long run. Further, the more money you pay each month, the faster you will pay off the loan.
While the idea of a short-term used car loan may seem perfect for your plans, keep in mind the following potential pitfalls:
- Less room for budget: Although a short-term car loan is the best way to pay off your debt quickly, you must adhere to a strict financing plan. If something unexpected happens and you need a large amount of money, you may find yourself in a financial bind due to high monthly loan payments.
- Higher monthly payments: You must spend more money each month to pay off your used car loan in a shorter period of time. A larger down payment can allow you to lower your monthly payments exponentially.
Used Car Loan Terms: Pros and Cons
Long used car loan terms typically range from 72 to 85 months or longer and offer customers several benefits, including:
- Lower monthly payments: One of the biggest benefits 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 keep more money in the bank. If you save enough in a savings account, you may pay off the loan early because of the interest earned on the account.
Despite lower monthly payments, payment flexibility and constant cash flow, long used car loan terms come with some cons to consider, including:
- Depreciation: Cars depreciate as soon as you drive them off the dealership lot. Although used cars do not depreciate as quickly as new cars, their value does decline over time. That’s why the longer it takes you to pay off your car, the less it’s worth. If the value falls below the amount you owe on the loan, you’ll be in reverse, which makes it difficult to trade in your car.
- More interests: Longer car loans usually come with higher interest rates, because the longer the loan, the more time the interest has to accrue. You may end up paying more in the long run than you originally planned. To understand how much you will pay, ask your lender for the interest rate.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. He has extensive knowledge of various lines of insurance, including auto insurance and property insurance. His byline has appeared in dozens of online financial publications, such as The Balance, Investopedia, Reviews.com, Forbes and Bankrate.