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.
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.
