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 loan may have a nicer-looking monthly payment, but it comes with a number of drawbacks, which we'll discuss in this article.

Jump to:
Current car loan market conditions
What are other people doing with their car loans?
Top reasons why a long car loan can be a bad idea
Alternatives to long loans
Final tip

Current car loan market conditions

Average new-car payments are continuing their upward trend, jumping to $744 through April 2025, according to Edmunds. That's an increase of about 1.4% since the last time we reported on this data in the fourth quarter of 2023. The increase reflects the continuing tendency of buyers to opt for costlier trucks and SUVs over lower-priced economy cars. 

Interest rates also remain historically high. The average annual percentage rate (APR) on new car loans in Q1 2025 was 7.1%, up from 6.8% in Q4 2024 and the same as it was in Q1 2024. 

In the face of economic pressure, many buyers are committing to longer loan terms. Edmunds data show that 84-month loans hit an all-time high in Q1 2025, making up 19.8% of new-car financing — up from 15.8% in Q1 2024. At the same time, short-term loans — those of 48 months or less — were chosen by 10.2% of buyers in Q1 2025, down from 11.9% in the first quarter of 2024.

A shorter term usually comes with a lower rate, and buyers typically finance less (about $30,000) on a shorter term. But even with rates as low as 4%, the average payment for 36-to-48-month loans is about $766 — just slightly more than the general $744 per month average seen in early 2025.

What are other people doing with their car loans?

The old "20/4/10 rule" of car buying states that you should make a 20% down payment, have a loan no longer than four years, and have a total monthly car budget that does not exceed 10% of your take-home pay. But the reality is, given how expensive new and used cars are today, this rule is not only widely ignored but also outdated. This is why Edmunds recommends a 60-month auto loan if you can manage it.

The trend is actually worse if you're looking at a loan for a used car. The average length of a used car loan in the first quarter of 2025 was about 70 months, around the same as in Q1 2023. Even though people are financing about $10,000 less for used cars than they do for new cars, it takes them roughly the same amount of time to pay off the loan.

"The auto finance market showed signs of steadiness in Q1, but that stability doesn't mean affordability has improved," said Jessica Caldwell, Edmunds' head of insights. "When one in five new-car buyers are taking on seven-year loans, it's clear how many consumers are still financially stretched. Even with rates holding relatively flat, the continued reliance on extended terms and high monthly payments reveals how challenging car buying remains. And now, with auto tariffs officially taking effect ... there's a risk that they will add fuel to the fire — triggering a disruption that could push vehicles even further out of reach for many shoppers."

Is there any benefit to having a six- or seven-year car loan aside from a lower monthly payment? No. In fact, there are many reasons why you shouldn't choose a long car loan. Let's take a closer look.

Top reasons why a long car loan can be a bad idea

1. Car fatigue: Many people don't consider this before taking out a long loan. We love our cars when they are brand-new, but when the romance fades, we're eager to trade them in for something else.

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

First, new cars: Imagine you have a 72-month auto loan, and you get the itch to buy a new car right around that common 100-month mark. You are only getting two years and four months without a car payment. If you took out an even longer 84-month loan and grew tired of your car in five or six years, you'd be stuck with a year's worth of payments for a car you couldn't wait to unload. If you were really desperate to dump the car, an alternative would be to roll the remaining months of the loan into your next car purchase. Edmunds data shows that some people are doing just that.

The average age of a car when it's traded in for a new one has risen to 7.6 years. But many cars are traded in much earlier, at the end of the typical three-year lease period, for example. And this kind of trade-in is almost always a bad idea because it creates a longer new-car loan commitment and higher monthly payments for the next car.

Now let's look at used cars: Say you buy a 3-year-old used car and pay for it with a 72-month loan, as many people do. And if you get tired of the car after about seven years, you'll have only enjoyed a year without car payments. If you choose to keep it, you're faced with a vehicle that is 9 to 10 years old.

"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."

Contrast these situations with buyers who choose five-year loans. At the average ownership mark of 100 months, they have already enjoyed just over three years without car payments and have the freedom to sell the car whenever they want.

2. Higher interest costs: Higher interest rates are another reason to stick with 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 loan amount for a new car to date in 2025 is $41,473, with an average interest rate of 7.1% and an average term of 69.1 months. That works out to an average monthly payment of $744, a significant chunk of money in most household budgets. It's easy to see why someone would opt for a longer loan. Total interest paid over the life of loan? More than $9,000.

Contrast that with an 84-month auto loan. The interest rate would be higher, which is common for longer loans. According to Edmunds data, the rate is averaging about 9.4%. For our new car with a loan amount of $41,473, the monthly payment for the 84-month loan would be around $676. Still a significant chunk, but less than the shorter loan. But extending the loan adds nearly $6,300 over the life of the loan, a whopping amount that accounts for almost nine more monthly payments.

The extra time spent making payments on longer loans means it also takes longer to build equity in the car. The faster you get to equity, the more flexibility you have to sell it or trade it in.

3. Negative equity: 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: You owe more on it than it's worth due to that depreciation. This situation is also known as being "upside down" or "underwater." 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 you to build equity in the car varies depending on the vehicle you bought 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 do plan on selling your vehicle when it is paid off, a 5-year-old car is more desirable and more valuable in the used car marketplace than one that's 7 years old. An average 5-year-old car has lost about 48% of its value at the time of purchase. A 7-year-old car has depreciated by about 59%. Put another way, the $41,000 new vehicle in our example will be worth roughly $21,320 after five years. It drops to $16,810 at the seven-year mark.

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.

On the other hand, a 7-year-old car is no longer a CPO candidate. Most automakers won't consider a car that's more than 5 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 that are being quoted for the usual five-year loan are too high for you. That may be a sign that you're shopping outside of your price range. Take a look at the Edmunds "What can I afford?" calculator. You start by entering your ideal monthly payment, and with a few clicks, you'll see cars in 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 recovering supply constraints, and it may be tough to find a good deal. The average transaction price for a 3-year-old used vehicle was $28,338 in Q1 2025, with an average payment of $550.

Final tip

While it's important to know what you can afford in terms of monthly car payments, that shouldn't be your only measurement of a good car loan. Take a look at all the numbers in the sales contract so that you are fully aware of the total amount you are paying for the car.