How long should my car loan be?
The 72-month option makes the payment feel lighter: $540.77 a month instead of $746.55. Here's what that costs: $3,101 more in interest. That's about 6 of your monthly payments.
Example: borrowing $30,000 at 9.00% APR (9.38% APY).
Use your own numbersWhat should I ask before I say yes?
A car loan is a promise to pay for years, so a few minutes of questions now can save thousands later. The monthly payment is the number that gets the most attention, but the total cost and the loan length decide what you really pay. Ask these three first.
What's the total I'll pay, not just the monthly payment?
The monthly payment times the number of months, plus your down payment. That's the real price of the car.
What are the payment and APR at 48 months?
APR (definition, opens in a new tab) (annual percentage rate) is the yearly cost of borrowing, shown as a percent. Ask for it at each loan length, because it can be different.
Will I owe more than the car is worth?
Cars lose value as they age. On a long loan, what you owe can stay higher than what the car would sell for, which makes it hard to sell or trade in.
Quick guess
When the 48-month loan is paid off, how much is still owed on the 72-month one?
Using the example below: borrowing $30,000 at 9.00% APR (9.38% APY).
What does this offer really cost?
Enter the offer from the dealer or lender. You'll see the monthly payment, the total interest (definition, opens in a new tab) (what borrowing costs on top of the price) and the total you'll pay. Then compare it with a different loan length to see what a lower monthly payment costs.
72 months (offered)
$0
a month
- Interest
- $0
- Total paid
- $0
48 months
$0
a month
- Interest
- $0
- Total paid
- $0
See every loan length
| Months | Monthly | Interest | Total paid |
|---|
Show the math
- You borrow the price minus your down payment and trade-in.
- Monthly rate = APR ÷ 12, the way car lenders charge. Monthly payment = amount borrowed × rate ÷ (1 − (1 + rate)−months). This is the standard formula for a fixed-rate loan with equal monthly payments.
- Total paid = monthly payment × months. Interest = total paid − amount borrowed.
- Each month, interest is charged on what you still owe, and the rest of the payment lowers the balance. The 1-year and 5-year numbers add that up month by month.
- It doesn't include insurance, registration or other costs of owning the car.
What does the longer loan cost after 1 year and 5 years?
A longer loan charges interest on a bigger balance for more months. That's debt compounding against you. After one year the difference looks small. By year five, the longer loan has cost more in interest, and you still owe more on a car that's five years older.
Watch both loans pay down
Press play, or drag to any month. The bars show what's still owed.
After 1 year
| Loan | Interest paid | Still owed |
|---|---|---|
After 5 years
| Loan | Interest paid | Still owed |
|---|---|---|
Interest on a loan is the third bucket: money that compounds against you.
What can I say to the dealer instead?
At a dealership, the conversation often turns to the monthly payment, because a lower payment is easy to say yes to. Below are lines you're likely to hear and a short, polite reply to each. Every reply brings the talk back to the total price, the loan length and the rate. You can negotiate the loan, not only the car.
Before you go: ask your bank or a credit union for a car loan offer (a pre-approval). Then you walk in with a rate to compare against.
You might hear
“What monthly payment are you looking for?”
You can say
“I'd rather start with the out-the-door price. What's the total, with every fee included?”
Once a payment is agreed, the loan can be stretched to hit it, and the total cost gets harder to see.
You might hear
“We can get your payment down with a longer loan.”
You can say
“Can you show me 48 and 72 months side by side, with the APR and the total cost for each?”
Seeing both totals at once makes the longer loan's real cost plain. The APR can differ by loan length, too.
You might hear
“Let's run your credit and see what you qualify for.”
You can say
“I'm pre-approved at ___% from my credit union. Can you beat that?”
With an outside offer, the dealer's rate has something to compete against.
You might hear
“This price is only good today.”
You can say
“If it's a good deal today, it will still be a good deal after I compare it. I'll come back.”
Time pressure makes it hard to compare. Walking away for a day costs you nothing.
You might hear
“Let's add the warranty and protection package to the loan.”
You can say
“Let's settle the car and the loan first. Then show me each extra and its price on its own.”
Extras rolled into the loan add to what you borrow and pay interest on, and they're hard to spot inside a payment.
If the shorter loan's payment doesn't fit: “Let's look at a less expensive car, or a bigger down payment, instead of a longer loan.”
Sources
- Consumer Financial Protection Bureau,Auto loans: you can compare rates and terms, and negotiate the terms of your auto loan.
Educational only, not financial advice. The numbers are illustrations based on what you enter, and real offers depend on your credit, the lender and the car.