How Many Years Can You Finance a Used Car?

The number of years you can finance your vehicle varies depending on your credit, your lender and even the vehicle you choose to purchase. Some institutions lend longer than others, so you may need to shop around. Even so, learn which factors you should consider when deciding how long you should you finance a used car before pursuing any term.

Common Terms

Lending options include 24 to 84 months for used-car financing and even longer through some institutions. However, the bank considers age, value and cost of the vehicle before approving a loan. Banks prefer a vehicle to depreciate appropriately in comparison to a loan. For example, you are not likely to find a lender to extend a 72-month term for a vehicle with a value of $6,000 because of depreciation. An 84-month term is not uncommon, although bank guidelines may require you to borrow a minimum of $30,000. The most common terms for used vehicles are 24 to 60 months.

Credit and Income

Your lending term may be affected by your credit history or income, as the bank considers both for your approval. For example, if you make $2,000 per month but pay out over $1,500 in debt, the bank may limit your borrowing to $200 per month for a car payment. This can affect your term by requiring you to go longer than you wanted to. Or, if you have poor credit, your lender may require you to purchase a vehicle for a shorter term, which results in a higher payment but allows the vehicle's equity to keep in line with the loan amount.

Interest Rate

Before deciding on what loan to apply for, use an auto loan calculator to view overall costs including interest rates during the time of your loan. The Edmunds website (see Resources) offers an auto loan calculator for free use. While you may prefer a lower car payment, using an auto loan calculator can prove a longer term displeasing because of the actual amount you'll pay back over time. Used-car interest rates usually remain the same from 24 to 60 months, although a term over 60 months warrants a higher rate.

Considerations

If you would like to keep your payment low but need a longer term, ask your lender if you can pay off your loan early without incurring any prepayment penalty fees. Many lenders do not charge you for paying off your loan early, but some do. If your bank does allow you to pay off your loan early, find out how you can go about sending in an extra payment and apply it to the loan's principle amount rather than balance with interest. You can avoid some of your interest charges this way.