How Loan Term Affects Your Monthly Car Payment
The loan term is the number of months you have to repay an auto loan. It has a major effect on both your monthly payment and the total amount of interest you may pay.
Shorter Loan Terms
A shorter loan term means fewer payments. Because the principal must be repaid more quickly, the monthly payment is usually higher.
The advantage is that the borrower generally pays less interest over the life of the loan.
Longer Loan Terms
A longer term spreads repayment over more months. This usually reduces the required monthly payment.
However, because the balance remains outstanding for a longer period, total interest can increase.
60 Months vs. 72 Months
Consider a hypothetical fixed-rate loan with the same principal and APR.
The 72-month loan will normally have a lower monthly payment than the 60-month loan.
However, the 72-month borrower makes twelve additional payments and generally pays more interest.
Why a Low Monthly Payment Can Be Misleading
Suppose one dealer offers a lower monthly payment but requires an 84-month loan, while another offers a higher monthly payment over 60 months.
The first offer may not actually be cheaper.
Always compare the amount financed, APR, loan term and total of payments.
How Long Should Your Auto Loan Be?
There is no single loan term that is right for every buyer.
Consider your budget, vehicle price, expected ownership period and total financing cost.
If a vehicle only fits your budget when financed over an unusually long term, that may be a signal to consider a less expensive vehicle.
Use the Calculator to Compare Terms
Our car loan calculator lets you change the loan term and immediately see the estimated monthly payment and total interest.
Try comparing 48, 60, 72 and 84 months using the same vehicle price, down payment and APR.
Final Thoughts
A longer loan term can make a vehicle easier to fit into a monthly budget, but the lower payment comes with a tradeoff. Compare total financing costs rather than focusing exclusively on the monthly payment.