Factors to Consider

As with any loan, there are various factors involved in determining how long it will take you to repay your auto debt. These include interest rates and additional fees associated with obtaining financing. But before all else, determine what type of car loan best suits your needs by considering these details:

1. Compare different types of loans, including their rates and terms, so that you can compare the interest paid.
2. Know the residual value of the car you want to buy so that you can better understand how much it will cost.
3. Consider your monthly budget to determine what type of payment plans work for you.

Financing Periods

Keep in mind that there are no right or wrong answers; buying a new set of wheels often comes down to doing what works best for your needs within your budget. And although financing for periods longer than 36 months used to be standard practice.

Today's auto loans offer flexible options ranging from 24 months all the way up to seven years (or even longer). The good news? Automakers are offering more attractive incentives, including low-interest rates and no down payments, to attract new customers.

So you've decided that car buying is the right thing for you at this time. Perhaps you have a new job in another part of the state or maybe you're just ready for a change of scenery. Whatever your reasons are, one factor that shouldn't influence your decision is how long it will take to repay your auto loan. In fact, automakers today are offering more attractive incentives than ever before to finance transportation necessities such as cars and trucks.

Of course, people have been financing vehicle purchases since Henry Ford began rolling off Model T's from a factory near Detroit nearly 100 years ago. But until recently, financing periods were often 36 months or longer. Over the past decade, as consumers started looking at their monthly budgets more closely and economic times became tougher, the average length of car loans began to shrink.

Today's average new vehicle loan is around five years (60 months) and about $27,000 per auto transaction . That's down from an average of six years (72 months) and almost $30,000, according to a recent survey conducted by Experian Automotive. The credit bureau said that "economic factors have contributed to the rising popularity of shorter-term loans."

These so-called subprime borrowers -- those with poor credit scores -- routinely financed vehicles for periods up to 84 months back in 2007, but today these buyers are opting for 48-month loans instead. Consumers are primarily shopping for smaller, more fuel-efficient vehicles with the flexibility to manage their monthly payments.

Reasons to Finance Your Purchase

There are many reasons why you might want to consider financing your next car purchase in fewer than 36 months, including:  

1. You want to keep your monthly payment within a specific budget or range.

2. You prefer less debt and lower monthly payments.

3. You're only driving the car for a few years before replacing it with another vehicle

4. The longer term will allow you to pay off the loan faster and save money on interest charges in the long run.

5. Or you might want to play it safe with a shorter repayment schedule in case your job situation changes and you find yourself in a tight spot financially.

Conclusion

Whatever the reason for wanting a shorter term, keep in mind that there are no "right" or "wrong" answers when determining how long to finance your car loan. We all have unique financial goals and needs.

If the path of least resistance gets you from Point A to Point B with a smile on your face at the end of each month, more power to you. Just be sure to do your research ahead of time so that purchasing a new set of wheels can be part of a happy ending instead of a stressful experience.