What’s the longest loan length you can get?

The car finance journey is one with more than a few crossroads to navigate.
 
You’ll be asked to make several decisions before you can sign on that dotted line and drive away in your dream wheels.
 
How much do you need to borrow? What type of car finance would you like? How much can you afford to pay each month? The list goes on; but one of the most important questions is: How long will your loan term be?
 
With loan lengths ranging from 12 to 72 months (or even longer in some cases), this could be a decision that impacts your life – and your spending habits – for the foreseeable future.
 
Don’t panic; we’re here to help. Read on to learn everything you need to know about loan term lengths - the long and the short of it (yes, we went there).

What are the different types of car finance options available?

Let’s start by breaking down the top four types of car finance.

Hire Purchase (HP)

HP is one of the most popular finance types. You have the option to put down a deposit upfront and then pay off the remaining loan balance in fixed monthly repayments. Once all your repayments are made – including the small Option to Purchase admin fee – those wheels will be all yours.

Personal Contract Purchase (PCP)

PCP is a lot like HP but doesn’t always lead to car ownership. You won’t need to borrow the car’s full purchase price, just the value it’s predicted to lose during your loan term. At the end of the agreement, you can choose to buy the car by paying the one-off balloon payment, return it, or use any available equity as a deposit in a new deal.

Personal Loans

These stand out compared to HP and PCP as you don’t need to wait to become the car’s legal owner – as soon as you use the loan to pay the dealer, it’s officially yours. Keep up with your repayments and you can do whatever you like with your new wheels – sell them, take them on a cross-country road trip, or install a new sound system and bespoke paint job (maybe give the go faster stripes a miss though!)

Personal Contract Hire (PCH) or Leasing

This is a great option if car ownership isn’t really your thing. It’s a type of long-term car hire – you’ll be responsible for keeping your wheels in good condition and paying for all the maintenance, but you’ll never be their legal owner. When the lease ends, you simply hand the car back and walk away.

How long are these financing options typically?

Each lender offers different loan products and can define its own term lengths for those products, but the typical length of each finance type is:

What are the benefits and drawbacks of a longer loan term?

The more time, the better? Not necessarily. There are pros and cons of every loan length including longer terms.

Pros of longer loan terms

• The longer your loan term, the lower your monthly repayments
• With lower repayments, you could have more money available to save for a rainy day or spend on other things (weekend in Paris anyone?)
• You may have a smaller balloon payment with a PCP deal

Cons of longer loan terms

• You might have to agree to a higher interest rate
• You’ll have to pay more in interest over time

What’s the right term length for me?

When it comes to deciding on the best term length for you, channel your inner Goldilocks and look for the one that’s just right.
 
It’s a personal decision, based on your individual circumstances, finances, and priorities.
 
A longer loan term might be right for you if:

• You don’t have a lot of disposable income
• You want to have a larger percentage of your paycheck easily available
• You want to buy the car at the end of a PCP loan
• You’re happy to drive the same car for a while

A shorter loan term could be a better fit if:

• You want to pay off the loan as soon as possible
• You don’t want to pay more in interest
• You can afford to make higher repayments
• You like to change car every two or three years

What other features of a loan term should I consider?

When thinking about the loan term, there are a few other factors to keep in mind that could help sway your final decision:

Early repayment charges

How much will you need to pay if you decide to end your loan term early and settle your finance.

Mileage restrictions

Some loans will ask you to agree to a set annual mileage at the start of the agreement and pay extra charges if you go over it.

Type of interest

The majority of car finance agreements will have a fixed APR, but if your rate is variable, the amount you have to pay each month might change.

Will the age of the car affect my loan term?

Just like their owners, older cars can start to show some wear and tear as they age. These well-loved wheels can become more prone to breakdowns, less reliable on cold winter mornings, and harder to fix as spare parts start to go out of stock. That’s why some lenders can be reluctant to finance an older car.
 
Depending on the lender, their eligibility criteria might consider the car’s age at the start of the loan or at the end. If you choose a longer loan term, your older model could have aged out of eligibility by the time that end date rolls around, so you might need to opt for a shorter term instead. Most lenders will have an upper age limit for cars of 10 – 15 years.