What Is The Average Car Loan Length

What Is The Average Interest Rate For A Car Loan

According to Statistics Canada, the average car loan interest rate in Canada is 4.44%. The average buyer can expect to pay anywhere between 4% to 6% interest on their car loan, depending on whether the car is new or used and whether the interest rate is fixed or variable.

Examples of interest rates

The following example shows the amount of interest you could end up paying for a brand new $40,055 car assuming a loan term of 7 years and no down payment.

Based on this analysis, a person with poor credit might have to pay over $20,000 more in interest over the course of their loan than a person with excellent credit. This is why it makes sense to build up your credit score before you sign on to a car loan.

Whats The Average Car Loan Interest Rate By Credit Score

Like loan lengths, car loan interest rates can and do vary depending on credit score. Naturally, borrowers with higher credit scores typically gain access to lower interest rates, while borrowers with lower credit scores can usually expect higher interest rates. Heres a quick look at the average interest rates on auto loans per credit score:

• 500 to 589: 15.24%
• 690 to 719: 4.95%
• 720 to 850: 3.60%

Theres also a relationship between the average car loan interest rate and loan term. Long-term auto loans come with lower monthly payments but higher interest rates, while short-term loans come with higher monthly payments and lower interest rates throughout the loan term:

• 36-Month Loan Term: 3.71% Interest Rate
• 48-Month Loan Term: 3.81% Interest Rate
• 60-Month Loan Term: 3.93% Interest Rate
• 72-Month Loan Term: 3.78% Interest Rate

What About Used Car Loan Rates

Used car loan rates tend to be anywhere between 48 to 60 months. These typically carry higher interest rates as well. This is as used cars tend to be higher risk purchases, being less reliable than new cars. You may also find it difficult to secure a loan for a car that’s older than 8 to 10 years.

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Alarming Car Buying Statistics

Auto loans over 60 months are not the best way to finance a car because, for one thing, they carry higher car loan interest rates. Yet 39% of new-car buyers in the first quarter of 2021 took out loans of 61 to 72 months, according to Experian. More alarmingly, Experians data shows 32% of car shoppers are signing loans for between 73 and 84 months thats from six to seven years, folks.

To close the deal, need to offer a payment that is comfortable, Weintraub says. Instead of reducing the sale price of the car, they extend the loan. However, he adds that most dealers probably dont reveal how that can change the interest rate and create other long-term financial problems for the buyer.

Used-car financing is following a similar pattern, with potentially worse results. Experian reveals that 42.1% of used-car shoppers are taking 61- to 72-month loans while 23% go even longer, financing between 73 and 84 months.

If you bought a 3-year-old car, and took out an 84-month loan, it would be 10 years old when the loan was finally paid off. Try to imagine how youd feel still making loan payments on a 10-year-old car.

Long loan terms are yet another tool the dealer has to put you into a car because they focus you on the monthly payment, not the overall cost. But, just because you could qualify for these long loans doesnt mean you should take them.

What Percentage Of People Have Car Loans

Based on the latest statistics, 62% of American adults have a car loan. In a like manner, the total auto debt reached a record of $1.37 trillion in the period of 2019 and Q4 2020.

Moreover, car loan debt represents 9.5% of the overall consumer debt in the US, right behind student loans and mortgage loans.

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How To Save On Your Average Car Payment In Canada

You can take the following steps to lower your average car payment in Canada:

Electric And Hybrid Cars Make 672% Of Vehicle Financing

Electric and hybrid cars are becoming more popular among consumers. Toyota is the ultimate winner when it comes to the largest market share of electric and hybrid vehicles .Tesla takes second place , followed by Honda , Lexus , and Ford .

What percentage of electric cars are bought on finance? While in Q4 2016, electric and hybrid cars represented less than 3% of the financing, in 2020, they made 6.72% of vehicle financing.

Electric and hybrid cars also come with higher average monthly payments than gasoline cars, $689 and $529, respectively.

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Owing More Than A Car Is Worth

The longer you own a vehicle and the more miles you put on it, the less it’s worth. During any loan period, a car is depreciating in value. However, long-term loans can actually cause you to pay more for your vehicle than it is worth.

Negative equity is when you owe more on a loan than the property the loan is helping pay for. This is also known as being “underwater” or “upside down.” In the first year, a car’s value can depreciate by 20 percent to 30 percent. Once you add in interest, Autolist says that this depreciation can lead to a negative equity cycle.

The Pros And Cons Of Short

Andy Smith is a Certified Financial Planner , licensed realtor and educator with over 35 years of diverse financial management experience. He is an expert on personal finance, corporate finance and real estate and has assisted thousands of clients in meeting their financial goals over his career.

Car loans come with a few options. Deciding on the term of your loanalso known as the length of your loanis an important part of the decision-making process. Auto loans come in several different terms, and each one can be beneficial to different consumers. Consumers are typically able to choose between 24- to 72-month loans. The major difference between the terms is the amount of interest you will pay, and the dollar amount of your payments.

Shorter loans will come with less interest over the term and have higher payments. Longer-term loans will have lower monthly payments, but more interest over the term. One key element to keep in mind is that the longer you make payments, the more you are paying for the car this can lead to you paying more for the car than you negotiated or that it is worth.

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Car Loan With Bad Credit

People with bad credit can still buy a new car, but its not easy and will cost more money than is worthwhile.

Lenders are at considerable risk making car loans to people with bad credit or no credit, so they take as many steps as possible to minimize that risk. It is not unusual for them to ask for a substantial down payment and charge an interest rate at least 10 points higher than what theyd charge someone with good credit.

This allows the banks to get closer to break even if the borrower defaults on the loan. They also can seize the car and sell it to someone else to recoup some of the loss if the borrow defaults.

A borrower with bad credit does has financing choices, though. If possible, start with a clean record, paying off any outstanding car loans and other debts before shopping for a new car. That improves your credit score and increases your options. Another option is a shorter loan term. Although the average car loan is 72 months or longer, a 48-month term will mean a lower interest rate.

If possible, save up for a large down payment. If you can cover at least 20-30% of the cost with money down, and take advantage of any dealer incentives and rebates when buying the car, you can avoid being in an upside-down position when financing the car. You may still have to pay double-digit interest rates at the start of a loan, depending on your credit score, but two or three years down the road, when your credit has improved, you can refinance the loan.

How Many Car Loans Can I Get In 2022

Although you can technically have a maximum of two car loans at once, this is not going to be an easy task.

First of all, you might not be able to qualify for a second loan. Secondly, lenders might reject your loan if you dont have a good income. And lastly, you need to have a good or excellent credit score to get the lowest APR.

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Drawbacks Of Long Car Loan Lengths

Alongside the advantages of long term loans, there are a few drawbacks to keep in mind.

• Long loans have more time for interest to accrue, and they tend to have higher interest rates overall.
• The longer-term means your vehicle will likely depreciate before you pay it off, and you might have to pay more than its worth.
• Theres more opportunity to default on the loan, possibly resulting in the seizure of your vehicle.

Because of these drawbacks, a longer loan term is usually not considered ideal.

Banks And Credit Unions

Most banks who offer auto loans provide similar rates as low as 3% to the most qualified customers. However, there is much variance amongst banks in the highest allowed APR, with top rates ranging from as low as 6% to as high as 25%. Banks who provide higher rate loans will generally accept applicants with worse credit, while more risk averse lenders wont offer loans to applicants with scores below the mid-600s.

The typical large bank has specific eligibility requirements for loans, including a mileage and age maximum for cars, and a dollar minimum for loans.

Generally, credit unions extend loans at lower interest rates than banks, have more flexible payment schedules, and require lower loan minimums . However, credit unions tend to offer loans exclusively to their membership, which is often restricted to certain locations, professions, or social associations.

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Youll Likely Have Heftier Interest Costs

A 72- or 84-month loan will likely leave you with a larger total interest payment than a loan term of 60 months or less. Take the $30,000, 3% APR car loan : Youd pay $2,344 in interest over a 60-month term. But with an 84-month loan at the same rate, youd pay $3,301 in interest.

A longer loan term may also come with a higher interest rate.

How Much Is Too Much For A Car Payment

When its time to buy a car, youll probably want to know: How much car can I afford? Financial experts answer this question by using a simple rule of thumb: Car buyers should spend no more than 10% of their take-home pay on a car loan payment and no more than 20% for total car expenses, which also includes things

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How Interest Rates Vary By Lender

Where you decide to get financing can impact the rates youll pay for a car loan.

Your options include:

Bank loans. Banks are favourable for individuals who have great credit scores. You could be eligible for 0% financing through your bank.

Online auto lenders. Online lenders may offer 0% financing but youre more likely to pay higher rates if you have less than perfect credit. Online lenders can offer car loan rates up to 30% or higher for borrowers who have poor credit history.

Dealership financing. Rates at dealerships mostly depend on the dealer. If a dealership works with an outside bank, your interest rate may be higher than what you might pay at a bank, credit union or online lender.

At Birchwood Credit, we do credit finance differentlywe lend our own money. This means quicker approval, better repayment terms and better rates for you, even if you dont have a perfect credit score. While banks or other lenders may deny you solely based on your credit score, we look at your entire financial situation and help you get the best rate available.

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You Could End Up Owing More On Your Car Than Its Worth

A new cars value can decrease by 20% or more in the first year. Once interest is factored in, this depreciation may mean that you temporarily have negative equity, or owe more on the loan than the car is worth. With a longer loan term, you build equity more slowly, and you could end up with negative equity for a much longer time period than if you had chosen a shorter loan term. This could make selling or trading in your car more difficult down the road.

If you have negative equity and want to trade in your vehicle, a car dealer may be able to roll the amount you still owe on your auto loan into your new car loan but this will increase your monthly payment and the total amount of interest you pay on the loan. And if you want to sell your car, you may not be able to sell it for enough money to pay off your auto loan. This means youd need to come up with the cash to pay your remaining balance on your auto loan.

Negative equity could also create a serious problem if your car is totaled in a collision. Collision insurance will typically only cover up to your vehicles fair market value. If you owe more on your loan than the car is worth, you could find yourself making payments on a wrecked car.

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Can You Refinance A Car Loan

If youre in desperate need of a car and cant shop around, or if your credit is bad, so you have to get a loan with high interest, you can refinance it down the line. This is especially true if your income or credit score improves. So, shop around for refinancing options to shorten the loan term, get a lower interest rate, or both. Your local bank or credit union are good options. There are also a variety of options online. Credit score and payment history will be factors in how good a deal you get, no matter who you go with.

What Is The Average Car Loan

The national average wont apply to everybody.

Its one thing to buy a used car with an excellent . Its a completely different story to finance a luxury vehicle with a freelancers salary.

Spoiler alert:

The auto loan bubble wont help you if your FICO score is dreadful.

However, this is not the only thing that determines how much your car loan will cost:

1. The average new car loan rate is 4.09%.

The average APR for auto loans varies depending on what car you buy. Why? Because with age, vehicles tend to become less reliable.

Your credit score also determines the loan rate. The lower your score, the riskier as a borrower you are and the higher interest you get.

For example, average new car loan statistics show that with a Super Prime profile , you can expect an average rate of 2.34%. At the other end of the spectrum, Deep Subprime borrowers get 14.59%.

The third important factor affecting car loan interest is the term. Longer periods do come at a higher price. The average 72-month auto loan APR is almost 0.3% higher than the typical 36-month loans interest rate.

2. The average US car payment is $575.

The average car note has increased since 2020. We are paying more per month for both used and new vehicles:

• In 2021, a new car would cost you $575 per month .
• The average monthly used car payment is $430 .

Yes, its getting more expensive to buy a car with borrowed money.

Why?

But whats the point of offering cheap loans? Why would a bank/credit union do that?

Now:

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Should I Extend My Loan Term When Refinancing My Car Loan

When evaluating refinance offers, dont forget to compare loan terms in addition to interest rates. If you can, try to get a lower rate and keep the same loan term. That way you save both monthly and over the life of the new loan.

Depending on your cars age and how far you are into your current auto loan, your lender may or may not give you the option to lengthen your loan term. However, if you do decide to get a longer term, paying extra toward principal every month can keep you from going too far upside down on your loan.

Do the math to see how much youll be saving with each option provided.