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What Is The Longest Car Loan Term Available?

If someone approached you and asked: would you rather pay £400 a month for a car, or £250? What would you answer? 🤔 Well, realistically, you’d answer £250. Yeah, we totally understand - we could all do with a chance to reduce our monthly outgoings. But is it really better to get the longest car loan you can? Let’s talk about the smartest decision you can make when deciding how long your car loan term should be.

What Is a Normal Length of Car Loan Term?

In the field of car finance, your car loan term length refers to how long your loan contract or repayment period will be. Most loan providers have a set of standard loan terms you’ll be able to choose from, ranging anywhere from 12 to 60 months. 

It’s difficult to establish what is considered a “normal” length of car loan terms because everyone is different. You’ll want to choose a car loan term that is realistically suited to your situation, your needs, and your requirements. That being said, most financial advisers will say that you should aim to have paid back the entire loan within three years. However, that may be an unrealistic expectation for many, so a good compromise for a normal car loan term would be within five years. 

Car Loan Terms Are Getting Longer

Word on the street is that nowadays, people are taking loans that are just far too long. Let us explain. In 2010, the average car loan term was set at 62 months, which is within the average of five years. In 2015, the number was up to 67 months. The car advice website Clark proclaims that the current median car loan term has crept up to almost 70 months, which is nearly six years. 

What’s even more astonishing is that when you dive deeper than the surface of these statistics, you realise that most people are taking out even longer loans. The most popular loan category is currently at 72 months, and other even longer ones are gaining popularity, such as 84 and 97-month loans. Yes, some people take out 8-year loans! 😮

The Reasons Behind Longer Car Loan Terms

When you think about the fact that longer car loan terms bring down your monthly repayment amount, it isn’t difficult to understand why people would want long term loans. In some ways, even if you’re paying a higher interest rate on a longer term loan, the fact that it is more spread out over a longer period of time might make it more affordable for your finances. 

The second reason why car loan terms have gone up so much is that car prices are getting so much more expensive. In fact, new car prices have gone up five times faster than wages in the UK. Seems absolutely bonkers, right? 

Well, in any case, these new trends beg the following questions: are we moving away from the ideals of the 5-year loan? And most importantly, what should you choose? 

How to Choose Your Car Loan Term

Because car finance is a matter of making the right decisions, we’re going to guide you through choosing the right car loan term for your situation. But first, let’s explore whether or not it’s possible to change the length of your loan during the course of the contract. This is useful to know and might take a whole load of pressure off your shoulders while making your decision. 

Can You Change Your Car Loan Term During Your Contract? 

The short answer is yes. However, the only way to change your car loan term during your contract is to refinance your loan in order to adjust your term length. In this case, you’ll need to contact your lender to discuss the available options. 

With Carmoola, you’ll always be free to change up your payments. If you’ve taken out a 5 year loan for example, and you’ve just got a promotion, you can change the term of your loan without any hassle at all. Do be careful though, because, with some other providers, it can be a bit of a nightmare to change your car loan term during your contract.  

The Benefits of Short Loan Terms

Earlier on, we mentioned that finance experts generally recommend short loan terms. But why? Is it really that much better to go for a short loan term? Let’s dive in. 

Less risk for the lender

When you take out a loan from a lender, the lender is agreeing for you to access the funds on certain conditions. One of these terms is that you have an adequate financial situation to be able to reimburse the lender within the course of the contract. However, no matter how much proof of your income and outgoings you provide, the lender will never be able to 100% guarantee that you can pay your loan back. 

That’s why shorter term loans are less of a risk for lenders. The shorter the period of time you have to reimburse your loan, the less likely your situation is likely to change before you’ve paid back the full amount. This also explains why you’ll pay less interest the shorter the loan term is - shorter loan terms mean cheaper loans because they are less risky for the lender. That brings us to our next point. 

Shorter loan term = cheaper loan

Another huge benefit to a shorter car loan term is how much of a better interest rate you can get. This also means that you’ll be able to sell a car that’s much less old than if you were to sell it years later, with a longer car loan term. You’ll save not only on a lower interest rate (because a short term is less risky for lenders) but also on the selling price you’ll be able to get out of your car once you’ve paid it back. This can amount to several thousands of pounds, so it’s definitely worth considering. 

The Benefits of Long Term Loans

Of course, the main benefit of long term loans is their lower monthly payments. In some cases, it can be a substantial amount of money that might make the difference between being able to afford a car and not. If a £50 hole in your budget is preventing you from purchasing a car, then you might want to consider a long term loan. ​​

Long term loans can also have the benefit of protecting you against any unexpected, emergency expenses. If your budget is stretched out as far as it can go each month, you won’t be able to afford any sudden spendings. However, if you have a longer loan term, you can put aside some money each month, which might even allow you to pay off your loan early. 

By the way, we have a car loan term calculator that can help you figure out what you need according to your budget. Feel free to give it a try! 😊

The Bottom Line

As all things car finance usually go, the first step towards making the right decision about your choice of car loan term is evaluating your budget. 💸 If you can’t afford to spend an extra hundred pounds a month for your car, you might want to consider getting a long loan term. However, if you’re worried about higher interest rates and are planning on selling your car as soon as you’ve paid it off, you might be able to save yourself a few hundred pounds by going for a short car loan term. 

Here at Carmoola, we offer the most flexible car loan contracts out there, and we make room for any changes in your life. Purchasing your next car should feel freeing, not stressful. If you’re interested in finding out more about our process here at Carmoola, we have:

  • Plenty of resources on our blog that you can access and which will help you learn about car finance
  • A video explaining how to use our app to get your car loan in a few simple steps
  • A team of friendly car finance experts who can help you get your ideal loan - feel free to contact us anytime!

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