How long should a car loan be?

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Are you shopping for a new car and wondering how long your loan should be? The quick answer is that Edmunds recommends a 60-month auto loan if you can manage it. That’s only the high-level advice, however. The length of the loan needs to be balanced with several other factors, including the monthly payment, the interest rate, and the amount of your down payment, to determine how much you’ll actually spend over the life of the loan. A longer car loan may have a more attractive monthly payment, but it comes with several drawbacks, which will be discussed in this article.

Current car loan market conditions

• Seven-year loans are becoming more common: In the face of economic pressure from tariffs, rising car costs, and high interest rates, many buyers are opting for longer loan terms. Edmunds data shows that 84-month loans reached an all-time high in the second quarter (Q2) of 2025, accounting for 21.5% of new-car financing, nearly tripling from the same timeframe in 2015 (7.3%).
• 72-month car loans are the most popular: The 72-month car loan has consistently been the most common loan term over the past decade. It reached a record high of 40.7% in the second quarter of 2017 and has since fallen to 36.1% in Q2 2025, largely due to people taking on longer loans.
• 48-month car loan percentages prove the old “20/4/10 rule” is outdated: This conventional wisdom called for a car buyer to make a 20% down payment, have a four-year loan, and a total monthly car budget that doesn’t exceed 10% of the buyer’s take-home pay. It makes sense on paper, but the reality is 48-month loans made up only 5.6% of loans in Q2. This hasn’t changed much over the last decade, as the figure in 2015 was 4.5%.
• 36-month car loans are the least popular: A three-year car loan might have been feasible decades ago, but not today — they made up only 4.4% of loans in Q2 2025.
• Interest rates remain high: The average annual percentage rate (APR) on a financed new car in October 2025 was 6.9%, up from 4.7% in 2020, according to Edmunds sales data. The Fed has made quarter-point cuts on the last two occasions it met, and it has indicated that it may make the same rate cut in December 2025, but that would still leave rates higher than they were five years ago. Interest rates for used cars are worse, with an average APR of 10.8% in October.

Average new-car payments are continuing their upward trend, jumping to $766 through October 2025, according to Edmunds. That’s an increase of about 31% over the past five years. The increase reflects the ongoing trend of buyers opting for more expensive trucks and SUVs over lower-priced economy cars.

Reasons why long car loans can be a bad idea

1. Car fatigue: Many people don’t consider this factor before taking out a long loan. They love their cars when they are brand-new, but when the romance fades, or a new baby comes into the picture, they’re eager to trade them in for something bigger or potentially better. Over the last decade, the average age of a traded-in vehicle has remained consistent at 3 to 4 years old.

Let’s take those average lengths of ownership and see what happens with various loan terms.

New car: Imagine you have a 72-month auto loan, and you get the itch to buy a new car right around that common three-year mark. You are still responsible for the remaining three years’ worth of payments on that initial loan. If your trade-in is appraised at a high value, it can be used to pay off the remaining balance; however, doing so would cut into a potential source of funds for a down payment on the next car.

What many people (29.4% in October) end up doing is rolling over that balance into the next car purchase. However, that puts you in an immediate negative equity situation, where you owe more on the loan than the car is actually worth. The average negative equity brought into a new car loan in October 2025 was $7,064. This results in higher monthly payments and leads to people taking out longer loans.

Used car: Most shoppers tend to buy about 3-year-old used cars and finance them with a 72-month loan. The trouble here is that if we assume the person is still stuck with their car and has reached the end of the loan, they’re now faced with an aging vehicle that is about 9 to 10 years old. Major repairs tend to happen in that timeframe, which in turn causes some people to want something new, to avoid the hassle or repair bill.

“That’s risky business when you consider wear and tear,” says Ivan Drury, Edmunds’ director of insights. “You could be at greater risk of rolling the negative equity into your next car loan.”

2. Higher interest costs: Higher interest rates are another reason to aim for a 60-month loan. The longer the term, the more interest you will pay on the loan, both in terms of the rate itself and the finance charges over time.

The average financed amount of a new car with a 72-month loan in Q2 2025 was $43,996, with an average APR of 7.6%. That works out to an average monthly payment of $763, a substantial amount in most people’s household budgets. It’s easy to see why someone would opt for a longer loan. Total interest paid over the life of an average loan like this? Just over $10,900.

Contrast that with an 84-month auto loan. The numbers show that the longer a loan term, the less substantial a down payment the person is likely to make. This means that the amount financed is higher, averaging $50,959. Additionally, the APR would be higher (8.1% in Q2 2025), which is common for longer loans.

The monthly payment for this average 84-month loan would be approximately $797, with a total interest cost of around $15,972. Extending the loan here an additional year would add about $5,000 in finance charges over the life of the loan.

And what would it look like if you took our advice and went with a 60-month loan? The data shows that you’d make a larger down payment ($4,500 more on average) to offset potential higher monthly payments. Alternatively, (this might not be what you want to hear, but) you could choose a less expensive vehicle to decrease the amount being financed. The average finance amount on a 60-month loan was $38,285. The interest rate is often better, at 5.4% in this case, along with a lower monthly payment of about $730. This strategy would result in a more reasonable total finance cost of $5,486, a huge difference from the other term options.

What if you are a used-car buyer? The average amount financed for a used car in October 2025 was $30,009, with an average interest rate of 10.8% and an average term of 70.1 months. This means that while used-car shoppers are financing about $13,009 less than new, it is taking them nearly as long, if not longer, to pay off the loan.

3. Negative equity: The extra time spent making payments on longer loans means it also takes longer to build equity in the car. Remember, in the first few years of a car loan, the bulk of the monthly payments go toward paying down the finance charges, not the principal (the initial cost of the vehicle). People who want to buy a different car in the second or third year are often shocked to realize that the payments they’ve made have hardly made a dent in the primary balance of the loan.

The faster you get to equity, the more flexibility you have to sell your car or trade it in. A new car typically depreciates 15% to 20% in its first year. At the beginning of a car loan, you usually have “negative equity” in the vehicle, even more so if you traded in a vehicle with a prior balance. If you make a down payment that’s too small, you put yourself further underwater. And you go deeper still if you opt for a longer loan term. The additional finance charges are to blame.

The time it takes to build equity in a car varies depending on the vehicle you purchased and your down payment. And equity is what you want: It gives you choices. When you have equity in the car, you can sell it if your other bills get out of hand or you lose your job. Negative equity, on the other hand, limits your options if you’re in a money bind. It also ties you down if you get tired of your car before it’s paid off. A buyer will only pay you what the car is worth, not what you owe on it. You’re stuck with the balance of the loan.

Similarly, if you get into an accident and the car is totaled, the insurance company will only pay you what the car is worth at the time of the accident. Unless you have gap insurance or new-car replacement insurance, the remainder of what you owe will have to come out of your pocket.

4. Lower resale value: Resale value is another reason to steer clear of extra-long car loans. If you plan to sell your vehicle when it is paid off, a 5-year-old car is more desirable and valuable in the used car marketplace than one that’s 7 years old. A dealership will always give you more money for the 5-year-old car. At that age, it’s still a good candidate to become a certified pre-owned (CPO) car, which means the dealer will have a more valuable car to sell. Looking at used car transaction prices, a 5-year-old vehicle typically sells for about 34% more than a 7-year-old vehicle, a difference of roughly $6,070.

Many automakers are less likely to certify a car that’s over 7 years old. Likewise, if it has too many miles, it won’t qualify for a CPO program. That also means you will get far less for the car as a trade-in.

Alternatives to long loans

Let’s say you want to buy a new car, but the monthly payments being quoted for the standard five-year loan are too high for you. That may be a sign that you’re shopping outside of your price range. Consider using an affordability calculator, where you enter your ideal monthly payment to find out which cars are within your price range.

You could also consider buying an older used car. Interest rates are higher for used cars, but since these cars cost less, there’s less to finance, and the payments should be lower. Just be mindful of the loan terms. The used car market in 2025 remains inflated, reflecting both general inflation and a lack of leasing activity a few years ago during the pandemic, making it tough to find a good deal. The average transaction price for a 3-year-old used vehicle was $30,955 in October 2025, with an average payment of $572.

Final tip

Remember, the ideal situation with a car loan is to reach the point where you pay it off and enjoy several years without car payments. Otherwise, you’re wasting money on financing and may as well lease the car since it gives you more flexibility to replace the vehicle in a few years.

This story was produced by Edmunds and reviewed and distributed by Stacker.