How Long Should a Car Loan Be? [Guide to Amortization]

Determining the ideal length of a car loan is a common challenge for many people. The decision involves more than just considering monthly payments. It requires understanding how the loan term will shape your financial future.

Loan length options typically range from 36 to 84 months. This gives buyers a wide range of choices that can make selecting the ideal loan term difficult. However, there is a way to simplify all the loan length options by focusing on a few key factors.

So, how long should you finance a car? Read on to learn how to make sense of this often confusing financing agreement.

What Is Auto Loan Amortization?

Amortization is the process of paying off debt. It includes both regular principal and interest payments over a period of time. Each payment is part of a car loan amortization schedule, which is the debt payoff plan.

You will pay more interest at the beginning of your loan. Over time, more of your monthly payment will go toward the principal balance. This helps to reduce your remaining loan balance quickly.

How Do Car Loan Amortization Schedules Work?

An auto loan amortization table is a valuable tool to compare different loan terms visually. It shows how each term's monthly payment, total interest, and overall loan cost vary. You can better determine if you should continue making monthly payments or pay extra toward the principal balance. The additional amount would offset the interest portion of your monthly payment.

Here is an example of an amortization schedule for an auto loan:

Vehicle Price: $30,000
Payment Period: 60 months
Down payment: $0
Interest Rate: 4%

Auto Loan Amortization Calculators

Using an auto loan amortization calculator will provide you with an amortization schedule. It will break down your monthly auto loan payment and show you how much goes toward the principal loan amount versus interest charges. This analysis can help you better understand your monthly payment structure. 

There are a variety of auto loan amortization calculators online. You will need to input this basic information to get a result:

Vehicle Price: How much does your vehicle cost?
Down Payment: How much down payment are you making on your vehicle?
Payment Period: How many months will you make payments on your car?
Interest Rate: What is the estimated interest rate for your auto loan?

Your results could vary by a few pennies depending on which online auto loan calculator you use. However, these tools can give you an excellent estimate of what to expect with your loan.

Visit the Best Reward Financial Calculator page to learn more about loan payment schedules, budgeting calculators, savings calculators, and much more.

Understanding Different Car Loan Terms

Many car buyers ask, "How long should a car loan be?" The answer depends on your financial situation and preferences. Car loan amortization plays a crucial role in this decision.

Here are the typical loan terms and their implications:

36-Month Car Loan

A 36-month car loan is a short-term financing option. It's ideal for those who can manage higher monthly payments. The main advantage is less total interest paid over the life of the loan. However, monthly short-term loan payments will be significantly higher than longer-term loans.

48-Month Car Loan

The 48-month car loan balances manageable monthly payments and a reasonable total interest cost. It suits buyers who prefer a middle ground in car loan amortization schedules. Monthly payments are lower than a 36-month loan but higher than longer terms.

60 vs 72 Month Car Loan

When comparing a 60 vs 72-month car loan, the key difference lies in the monthly payment amount and total interest paid. A 60-month loan offers a not-too-high monthly payment and a moderate interest cost. In contrast, a 72-month loan reduces the monthly burden but increases the total interest paid over the life of the loan.

84-Month Auto Loan

An 84-month auto loan is for those who need the lowest possible monthly payment. This term significantly stretches the car loan amortization schedule. While it offers monthly payment relief, it also has the highest total interest cost. Carefully consider this term, since longer loan terms have higher interest rates.

Remember, understanding car loan amortization and its impact on your finances will help you make a more informed decision. Determining the best loan term for a car depends on balancing monthly payments with total interest costs.

Is a 72 or 84-month Auto Loan a Good Idea?

There are many factors to consider when in the market for a car loan. Credit union or dealership financing? Down payment or no down payment? Extended warranty or standard warranty? 60-month term, 72-month term, or even an 84-month term?

Every decision you make during the auto loan process is important. As car prices increase, loan terms are getting longer to improve affordability. While the typical loan length is still around 60 months, many financing companies now offer loans at 72 or 84 months. In some instances, they offer even longer terms.

Pros of a Longer Auto Loan

Auto loan terms offered by lenders are getting longer and longer. This raises the question: is an auto loan with an above-average length good for you? Here are several reasons why someone might consider a longer auto loan term.

Lower Monthly Payment

One of the primary benefits of a longer auto loan is that your monthly payment will be lower than if you got a shorter term. The payment is lower because you are extending the amount of your loan over a longer period.

Suppose you want to buy a $20,000 car with a $2,000 down payment and a 6% interest rate. Here are examples of what you would pay based on a standard monthly payment for several different loan terms:

• 36 Months: $547.59
• 48 Months: $422.73
• 60 Months: $347.99
• 72 Months: $298.31
• 84 Months: $262.95

As you can see, the shorter the loan term, the higher the monthly payment. We invite you to use our online loan calculator and plug in the numbers specific to your finances.

A lower monthly car payment gives you more flexibility in your budget because you can allocate the extra funds that would have gone toward your car payment to other expenses.

Qualify for a More Expensive Car

Taking on a lower monthly auto loan payment may allow you to purchase a more expensive vehicle. Typically, a newer automobile with fewer miles and more bells and whistles often costs more overall. But, a more affordable financing term results in a monthly amount within your budget. This loan structure enables upgrading to a superior car that fits your needs and preferences better.

You Plan to Keep the Car for Several Years

Some buyers plan to keep their car for eight or even 10+ years. As such, opting for a higher-priced and higher-quality vehicle while paying over several years makes sense for them.

In many cases, these buyers have done their homework. They know a 72 or 84-month loan can easily fit into their budget. However, they also know they can pay more when their budget allows without any penalty.

In fact, many people pay off their long-term auto loans ahead of schedule. However, they still benefit from lower ongoing monthly payments over the original loan duration.

Cons of a Longer Auto Loan

You will enjoy a lower monthly payment and can afford a nicer car with a 72 or 84-month auto loan. However, there are a few potential downsides to consider.

Pay More in Interest

With a longer auto loan term, your payment will be lower but you will also pay more interest than if you choose a shorter term.

Here’s an example of the interest paid over the life of a loan using the same $20,000 car from the previous example:

• 36 Months: $1,713.42
• 48 Months: $2,291.07
• 60 Months: $2,879.43
• 72 Months: $3,478.36
• 84 Months: $4,088.13

You will pay over $1,000 more in interest by extending your loan from a typical 60-month term to an 84-month term.

Here is another tool you can use to compare auto financing terms. It highlights how much you can save in interest based on various scenarios.

Get Upside Down on Your Loan

By the end of a long-term loan, it’s common to owe more than the car is worth due to the vehicle’s continual depreciation. This is especially true if you pay a low or no down payment during the purchase and then opt for a 72 or 84-month loan. This is called “being upside down” on your loan or having negative equity.

You can wind up in this situation if your car is in a major accident or you decide to trade it in. You must then pay the additional funds to settle your debt with the lender fully. This situation will cause you to lose even more money.

No Warranty

Most new cars, and some used cars, come with a level of warranty protection that lasts typically from 3-5 years. If you keep a car for seven or more years, it likely has no warranty.
As vehicles age, they tend to cost more to fix and maintain. That’s not a huge deal if you fully own your car. However, bigger repair bills can be harder to manage when you’re still paying off your loan as well.

Your Car Needs Might Change in 7 or 8 Years

A lot can happen in seven or eight years. The vehicle you purchased in 2024 might not be the car you still want or need in 2031. You may have children and need a bigger car,  or you might be an empty nester who wants to downsize to a smaller vehicle.

Also, you might owe more on that eight-year-old car than it’s currently worth. At that point, you’ll need to factor in the additional cost of paying off your existing loan when buying a car.

When You Should Get a 72 or 84-Month Auto Loan?

We generally don’t recommend long-term car loans. However, as mentioned before, sometimes a longer term may suit your financial needs better. If you choose a lengthy loan, examine your monthly budget for extra funds beyond savings and debt payments.

Paying an additional $25-$50 monthly towards your principal loan balance can accelerate repayment.

Alternatives to a 72 or 84-Month Auto Loan

If you’re hesitant about making higher monthly payments on a shorter-term loan, here are a few alternatives:

Financing a less expensive vehicle: Consider looking into different vehicle models or sizes. For example, can you live without the factory-installed rear seat entertainment system or leather seats? If so, opting for the same vehicle in a different model can save you thousands.

Waiting a few months to buy: Do you have to buy a new vehicle now, or can you wait a few months? Waiting will allow you to save up for a larger down payment or to pay off other debt to improve your credit score. The stronger your financial circumstance, the better position you will be in to get the lowest interest rate and monthly payment.

Get the Best Financing for Your Next Car

At Best Reward Federal Credit Union, we want to help you finance a vehicle with ideal terms. That’s why we strive to save you money and reduce stress throughout the process.

Click below to learn more about our highly competitive auto loan rates.

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