Guide 13

How Long Should You Finance a Car?

6 min read

Loan terms have crept longer across the industry — 72 and even 84-month loans are common now, largely because they're the easiest way for a dealer to make an expensive car look affordable on a monthly basis. Longer isn't automatically wrong, but it comes with real tradeoffs.

Shorter terms cost less overall

A shorter loan pays off principal faster and accrues less interest overall, even at the same rate — and shorter-term loans often qualify for lower rates in the first place, since lenders see them as lower risk. The tradeoff is a higher monthly payment for the same vehicle price.

Longer terms lower the monthly payment — at a cost

Stretching a loan to 72 or 84 months lowers the monthly number, which is exactly why dealers push it — it makes a more expensive car fit a target payment. But you'll pay meaningfully more in total interest, and for longer, you'll likely be "underwater" — owing more than the car is worth.

Why being underwater matters If you're underwater and the car is totaled, or you need to sell or trade it, you'll owe money out of pocket to close the gap. Combine a long loan term with a low or no down payment and this window can last several years.

A practical guideline

Many financial advisors suggest keeping loan terms at 60 months or shorter when possible, and treating anything past that as a signal you may be buying more car than fits your budget — rather than a tool for making the payment "work."

What to do instead of extending the term

Consider a less expensive vehicle so a shorter term still fits your budget.
Increase your down payment to lower the amount financed.
Shop multiple lenders for a better rate rather than a longer term.
Run the numbers through a payment calculator at different terms before deciding — the difference in total cost is often larger than it looks month to month.

Compare loan terms in the calculator