Whether you're looking to buy a new or used car, there's a good chance you'll be taking out an auto loan to finalize your purchase. And when shopping for an auto loan, there are a few things you need to look for: a reputable lender, a low interest rate, and reasonable terms. Not all borrowers, however, understand the true importance of a loan's repayment length. This refers to the total amount of time you'll have to pay off your loan completely. 

By having a better understanding of what the average car loan repayment term looks like and why repayment term matters, you can move forward in finding the auto loan that's best for your needs.

How Long Is a Typical Car Loan Repayment Term?

As you explore car loan options, you'll notice that there is a wide range of repayment terms available. Typically, car repayment terms are measured in months, with the most common term being 72 months (six years). Some terms, however, may be as little as 24 months or as long as 96 months.

What Difference Does Repayment Term Make, Anyway?

The repayment term on a car loan matters for a few reasons. For starters, it's important to realize that the longer you're making payments on a car loan, the longer you're also paying interest on the money you've borrowed. So while that 96-month repayment term may allow you to make smaller monthly payments (because your principal balance is broken up into more installments), you could end up paying significantly more money in interest over the life of the loan.

Depreciation should also be taken into account when it comes to choosing a vehicle loan term. If you're buying a brand new car, it could depreciate in value by as much as 11% after you drive it off the lot and up to 30% in the first year of ownership. You don't want to still be making payments on a car long after its value has depreciated; with a shorter repayment term, you can have a clean title of ownership on your car and it may still be worth quite a bit of money.

The bottom line when it comes to auto loan repayment terms is that you should choose the shortest term you're comfortable with to save money. Keep in mind, however, that you may still be able to pay your loan off early to save even more; just check with your lender to be sure that there are no pre-payment penalties in place.

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