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How long can you finance a new car?

How long can you finance a new car?



This is part of a series breaking down all the terms you need to know if you're buying a new or used car from a dealership. Check out the rest of the series at our Car Buyer's Glossary.

Few people pay for a new-car purchase with a 100-percent up-front cash payment, so the two most often-used methods of getting a new car are leasing it, or financing a new car via a loan from either a bank or a financing company. Both the lease and the payment plan are structured to last through a certain amount of time, often several months or years. That agreed-upon length is called the term of the lease or the term of the loan.

What's the difference between a lease and a loan term?

Essentially, a lease is paying money over an extended time period to rent a car, while a loan is slowly paying money toward eventually owning the car. All other things being equal, a lease will cost less per month because you're only paying for what you use, and you don't retain ownership in the car after the lease term is over. The term of a lease is usually 24 to 36 months. The average new car loan in the United States now stretches to just under 70 months.

How long can you finance a new car?




A payment plan for a loan can range from short to long, as the customer largely has the say in the length of the loan. The most common loan term is 72 months, but even longer loans are becoming common. For example, 84-month (and even 96-month) loans are being offered more often these days as vehicle prices go up. These loans offer smaller monthly payments, which are attractive to many shoppers, and usually require smaller down payments. However, it could very well be a poor financial decision depending on your interest rate.

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A lease has certain perks. There will likely be a lower up-front down payment, lower monthly payments, and as the lease will coincide with the vehicle's warranty, maintenance and repair costs will be limited. It also allows for easy turnover to a new vehicle after a short time. However, downsides often include mileage limits, excess wear charges and other fees and conditions that can add hundreds of dollars at the end of the lease. And, of course, you don't get to keep the car (unless you exercise a clause in the lease agreement to purchase it) or make any money back when it's time to return it.

How do you finance a car?

You can finance a car by obtaining a loan through a bank or financing company. When buying new, dealerships will typically steer you into financing with them, but you're not required to do so. It's recommended that you shop around (specifically with your bank) to see what sort of terms you can negotiate ahead of stepping foot into the dealership.

Can I trade in a financed car?