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How long can you finance a car?

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    Financing a car is an exciting milestone, however, there are many factors to consider before driving off the lot. Most car buyers require financial assistance for some, or all, of their car purchase in the form of a car loan. The length of the loan can be adjusted to the monthly payment amount that may be right for you depending on how long you plan on keeping your car and how quickly you’d like to pay it off.

    What’s the longest you can finance a car?

    While the typical car repayment term is 72 months, the range of repayment terms can be as short as 12 months and as long as 96 months, though not all lenders will provide the shortest- or longest-term options.

    If you take out a shorter repayment term, you’ll typically have higher monthly payments with lower interest rates, and you’ll generally pay less in interest to your lender over time. If you take out a longer repayment term, you will usually have lower monthly payments with higher interest rates, typically costing you more in total over time.

    The repayment term you ultimately choose will be determined for the most part by your cash flow. If you have a higher income and few debts, you may opt for a shorter repayment term, which comes with a higher payment. If you have a lower income and several debts, you may prefer a longer-term loan. You’ll have a lower payment with the longer term but will pay more in interest over the life of the loan.

    Can I sell a financed car?

    As mentioned previously, the average loan term is currently 72 months.  However, a lot can change over the course of six years, including your driving needs. What if you see a new car model out there that you just must have? Or maybe your current car is showing its age and you’re just tired of it. Don’t worry. You don’t have to keep your current car until the loan is paid off. 

    If you want to get rid of a financed car, you can sell it at any time to a private party or dealer, pay off any outstanding amount on your loan, and use the cash left over for whatever you want, possibly your next car. Or, to streamline the new car process, you could trade your current car to your dealer for a new car. The dealer and you will agree on the traded car’s value, and that amount will be applied to the purchase of your new car, minus any amount that still might be due to a current lender. 

    In some cases you may be in negative equity status, a very common situation, which means you owe more on your current car than it’s worth. This is not always a deal breaker. If you have cash on hand, you can pay off the current car and proceed with the sale. If you’re trading with a dealer, the dealer’s finance department may be able to work out a transaction that pays off your current lender and adds negative equity to your new financing.

    Auto finance mini glossary

    The following are some helpful definitions to know as you shop for a car, weigh your financing options and determine your loan repayment term: 

    • Amortization: To pay for something in installments over a period of time.
    • Annual Percentage Rate (APR): The annual rate that you pay for borrowing money expressed as a percentage.
    • Equity: A car’s market value above any amount owed on the loan.
    • Down payment: The amount of money you pay up front to reduce the amount financed.
    • Lien: A property claim on the vehicle typically held by the lender until you repay the amount owed.
    • Trade-in allowance: The amount the dealer agrees to pay to purchase a trade-in car.

    The bottom line

    While you can finance a car for up to 96 months, how long you finance a car really depends on your unique needs, wants and cash flow. Some shoppers opt for a shorter loan term that comes with higher monthly payments and reduces the total cost of the loan. Others opt for a longer loan with lower monthly payments to assist with cash flow, paying more over time.   

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