How long can you finance a car?

Financing a car is an exciting milestone, but there are several factors to consider before you drive off the lot. Most car buyers need financial assistance for part or all of their car purchases through a car loan. The loan length can be adjusted to fit the monthly payment that works for you, depending on how long you plan to keep your car and how quickly you want to pay it off.

What’s The Longest You Can Finance A Car?

While the typical car repayment term is 72 months, repayment terms can range from as short as 12 months to as long as 96 months, although not all lenders offer the shortest or longest options. If you choose a shorter repayment term, you’ll usually face higher monthly payments but lower interest rates, resulting in less interest paid to your lender over time.

 Conversely, a longer repayment term typically means lower monthly payments but higher interest rates, which can lead to a higher total cost over time. The repayment term you select will largely depend on your cash flow. If you have a higher income and fewer debts, you might prefer a shorter repayment term with a higher payment. On the other hand, if your income is lower and you have several debts, a longer-term loan may be more suitable. This option will give you a lower payment, but you’ll end up paying more in interest throughout the life of the loan.

Can I Sell A Financed Car?

As mentioned earlier, the average loan term is currently 72 months. However, a lot can change over six years, including your driving needs. What if you come across a new car model that you just have to have? Or perhaps your current car is starting to show its age, and you’re simply tired of it. Don’t worry; you don’t have to keep your current car until the loan is fully paid off.

If you want to get rid of a financed car, you can sell it at any time to a private party or dealer. Just pay off any outstanding balance on your loan, and you can use the remaining cash for whatever you like, perhaps towards your next vehicle. Alternatively, to simplify the process of getting a new car, you could trade in your current vehicle at the dealership. You and the dealer will agree on the value of your trade-in, which will then be deducted from the price of your new car, minus any remaining balance owed to your current lender.

Sometimes, you might find yourself in a negative equity situation, which is quite common. This means you owe more on your current car than it’s worth. However, this doesn’t always prevent you from making a deal. If you have cash available, you can pay off your current car and move forward with the sale. If you’re trading it in at a dealership, their finance department may be able to arrange a transaction that pays off your existing lender and incorporates the negative equity into your new financing.

Auto Finance Mini Glossary

Here are some useful definitions to keep in mind as you shop for a car, consider your financing options, and decide on your loan repayment term: 

Amortization: Paying for something in installments over some time.

Annual Percentage Rate (APR): The yearly rate you pay for borrowing money, expressed as a percentage.

Equity: The market value of a car that exceeds any amount owed on the loan.

Down payment: The initial amount of money you pay to lower the financed amount.

Lien: A claim on the vehicle by the lender until the owed amount is fully repaid.

Trade-in allowance: The price the dealer agrees to pay for your trade-in vehicle.

In Short

While you can finance a car for up to 96 months, the duration of your financing should align with your individual needs, preferences, and cash flow. Some buyers choose a shorter loan term, which results in higher monthly payments but lowers the overall cost of the loan. Others prefer a longer loan with lower monthly payments to ease cash flow, ultimately paying more over time.