How long is an average car loan?
As the borrower, you will apply for a car loan with the intent of using that money for the purchase of a vehicle. You will have the choice of either a short term or long term car loan, where you can make repayments over the course of a few months to a few years. Depending on the borrower’s personal needs and financial circumstances, the length of an average car loan will vary. This is why it’s important to research your options and compare car loans to choose the loan that’s right for you.
A car loan is a type of personal loan for a new or used car. Anyone who meets the loan requirements of their chosen lender or finance provider can choose to buy a car with a personal loan.
How long is an average car loan?
The length of an average car loan will vary depending on the purchase price of the vehicle, the loan amount borrowed, and the circumstances of your personal finances.
A typical car loan term can be anywhere from between 12 months and 10 years. One of the most deciding factors when it comes to calculating your overall loan term is the amount you need to borrow.
The overall cost of your loan will be determined by risk-based pricing. This means your chosen lender will factor in a range of details including your credit score and financial situation. The most suitable length for your car loan will then be determined by your lender.
Depending on how much borrowing power you have, you may choose either a short term or long term car loan. A long term car loan essentially means you’ll be paying off the loan over a longer period of time, but with smaller more frequent repayments. A short term car loan, on the other hand, means you’ll pay off your loan over a shorter amount of time but often with higher monthly repayments.
Short vs long term car loans
The length of your car loan term will either be shorter or longer, depending on the price of the car you wish to buy, the lender you choose, and the agreement reached.
The major difference between short and long term car loans is the amount of interest you will pay and the repayment amount.
Typically, the average interest rate on car loans can be anywhere from between 5% and 17%. Good credit history will generally reward you with a lower interest rate of between 5% and 10%. Whereas the poorer your credit score, the higher interest you’ll be paying – often in the realm of 10% and 20%.
A good interest rate will be one of the most important factors when it comes to the average length of your car loan. The lower the interest rate the shorter your loan term.
Some people may prefer a long term car loan because it allows them to make smaller monthly repayments over a stretched out period of time. However, you generally pay higher interest and make more payments over the duration of the loan period compared to a shorter loan term. Keep this in mind when deciding on the length of your loan term.
How to choose the best car loan term
The first thing you should do is compare car loans, and where possible, choose the shortest loan term available. That way, you will have a better interest rate meaning you will pay less overall for your new car than you would on a longer loan term. The benefit of this is that you’ll be able to pay off your loan faster, get rid of your debt faster, and start saving sooner.
At RateSetter, we offer simple car loans through peer-to-peer (P2P) lending. P2P loans offer competitive interest rates and more flexible repayment options.
We make choosing the best car loan term easy by offering flexible loan terms. You can borrow between $10,000 to $100,000 for a new, demo or used vehicle under 7 years old and on a secured loan. What’s more, there are no monthly or early repayment fees. You even have the option to make extra repayments on your loan, allowing you to own your vehicle within a shorter amount of time. The choice is yours when it comes to the vehicle purchased and how long you want to be paying it off.
When you choose to get a car loan with RateSetter, we’re all about low rate car loans that are 100% tailored to you and your specific circumstances.
If you’re thinking about getting a car loan, we recommend completing our quick and easy RateEstimate that will provide you with a customised car loan term suited to you.
Interested in taking out an award-winning car loan? Check out your personalised rate now!
Sebastian has over 12 years experience in consulting, marketing and finance. He has worked with Australia’s largest banks and emerging fintechs across lending, investing and insurance. Sebastian has a Bachelor of Commerce and Bachelor of Laws with Honours.
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of RateSetter as at the date of publication and may later change without notice.