So, 60- vs. 72-month car loan—which is better?
Unfortunately, with both loan terms, you’re at a much higher risk of going “upside down,” which means owing more than the car is worth over the life of the loan due to depreciation. But, if you are someone who likes to hold onto your car for a long time, this may not be an issue. Overall, if you’re choosing between the two, a 60-month loan is better because you’ll pay off the loan faster with a lower interest rate, and you’d be paying less overall for your car.
If you’d like to make more auto loan comparisons, this article on common car loan terms can help.
Is a 72-month car loan worth it?
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn’t an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.
Tips on taking a detour from a longer car loan term:
- Shop around. Many experts agree that it’s best to do some research before autographing auto loan forms. It also helps to get pre-approved beforehand so that you have a better idea of the loan amount you qualify for and monthly payment amounts. It’s also a good idea to look for a loan with a low APR to help lower interest payments.
- Refinance your long-term loan.If you’ve already pulled the trigger on a long-term loan, know that there’s still hope. You can look into refinancing your ride, and with good credit, you’re more likely to get a better interest rate. Our auto loan refinance calculator can help you decide if refinancing makes sense for your situation.
- Make a larger down payment. It’s a good idea to save at least 10% for a down payment for a used car and 20% for a new car. If you’re not sure if it’sbetter to get a new or used car, you may find this article to be helpful.
Note:If you absolutely cannot swing a shorter-term loan, and you’re in dire need of transportation, it’s okay to get a long-term loan to free up more cash every month for other necessities. However, it’s a good idea to put down more money on your monthly payments than agreed upon when you can. Just be sure that the additional amount goes towards the principal balance of your loan and that there aren’t any pre-payment or pre-payoff penalties.
What credit score do you need to get an auto loan?
Fun fact, it’s a myth that people have just one credit score. The truth is that you have many credit scores! One of the most common scoring models is FICO®, which offers a FICO® Auto Score that weighs many different factors into account—with credit utilization having the most impact.
How FICO® categorizes credit scores:
- Exceptional: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300 to 579
However, it’s important to note that not every lender uses the same scoring model for credit scores, and they have their own categorization methods. Typically, borrowers need at least a 661 to qualify for an auto loan. Keep in mind that lenders will also weigh income heavily into account when reviewing applications. The better your credit scores and income, the better your interest rate will be. If you’re looking for ways to improve your scores, this guide provides some helpful tips on how to do so.
Pssssst, just remember that applying for a car loan can typically involves a “hard” credit inquiry. This means that with a formal application, lenders reach out to the credit bureaus to get your score. Too many hard hits will raise a red flag for credit bureaus, which can lower your score. Typically, you can apply for a handful of places within a two-week timeframe before it does any damage to your credit.
What is a good interest rate for an auto loan?
Interest rates will vary based on credit score, term, location, income, debt, loan amount, and type of car you’re buying, to name a few. But, knowing the average auto loan rates can help give you a better idea of what to look for when shopping.
The average interest rate is 4.05% for new cars and 7.98% for used cars for borrowers with credit scores in the range of 661-780. Here are some helpful tips on applying for a used car loan.
FAQs
Is a 72-month car loan worth it? Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go.
Which credit union is best for auto loans? ›
Compare Car Loan Rates
| Top Auto Loan Lender | Lowest APR | Our Award |
|---|
| PenFed Credit Union | 5.24% | Best Credit Union Auto Loan |
| Auto Approve | 5.24%** | Best Auto Refinance Rates |
| Consumers Credit Union | 6.54% | Excellent Credit Union Auto Loan |
| Auto Credit Express | Varies | Best Auto Loan for Bad Credit |
3 more rowsThere'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.
What is the best duration for auto loan? ›
NerdWallet recommends financing new cars for no more than 60 months and used cars for no more than 36 months. These maximums can help you avoid some of the negative outcomes of long-term loans.
What is the rule of 72 on a car loan? ›
Just divide 72 by your interest rate, and there you have how long it would take for the loan or investment amount to double. So, 1% would take 72 years to double. 5% takes about 15 years to double. 10% takes 7.2 years to double.
Does a 72-month car loan make your rate go up? ›
72-Month Car Loan Rates Are Typically High
To offset the added risk that lenders tend to perceive, they may charge a higher interest rate or annual percentage rate (APR) than they otherwise would.
Why should I use credit union for car loan? ›
Lower interest rates: Interest rates on new-car loans from credit unions average more than 2% lower than bank rates. 5. Fewer requirements: Once you are a member of a credit union, it can be easier to get a car loan than from a traditional bank, especially if you have a poor credit score.
What FICO score do credit unions use for auto loans? ›
What credit score do auto lenders look at? The three major credit bureaus are Experian, TransUnion and Equifax. The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage.
Will auto loans go down in 2024? ›
Auto loan rates for new and used vehicle purchases fell in the first quarter of 2024 to 6.73% and 11.91%, respectively, down slightly from the 15-year highs we saw at the end of 2023, according to Experian.
How much is a $20,000 car payment per month? ›
Payments would be around $377 per month. According to the results, it will take you 60 months, an interest rate of 5% of $2,645, to fully pay your $20,000 car loan. However, the monthly cost of a $20,000 car loan will depend on your repayment period and the annual percentage rate (APR).
Calculator Results
A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483. In total, the loan will cost $34,787 with $4,787 in interest.
What is the oldest car a credit union will finance? ›
Get Car Financing
Typically, a bank won't finance any vehicle older than 10 years, even if you have good credit. If you don't have great credit, you may find it difficult to finance through a bank, even for a new car.
Can you pay off a 72 month car loan early? ›
Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.
What is a good APR for a car? ›
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.
What is the ideal car loan term? ›
NerdWallet typically recommends keeping auto loans to no more than 60 months for new cars and 36 months for used cars — although that can be a challenge for some people in today's market with high car prices. Ultimately, choosing the best auto loan term depends on balancing cost, affordability and your specific needs.
How many months is best when buying a car? ›
Your best bet is to buy between October and January 1st. December is particularly ripe for deals, discounts, rebates and other incentives as well. This is because car salespeople are aggressively working to meet their monthly, quarterly and yearly quotas.
Why should you not finance a car for more than 4 years? ›
A longer loan term means you'll get a lower monthly payment, but you'll also pay more in interest. A shorter loan term is better, as it helps minimize borrowing costs and the risk of being upside-down on your loan.
How many year car loan is best? ›
However, if the burden of monthly EMI that short-term loans get problematic, choosing a long-term, anytime within 7 years would be wise. The monthly pay out would be reduced compared to short-term loans.
Why is it better to pay a car loan 2 times a month? ›
By the end of each year you would have paid the equivalent of one extra monthly payment. This additional amount accelerates your loan payoff by going directly against your loan's principal. The effect can save you thousands of dollars in interest and take years off of your auto loan.
