A car loan charge off is something that may happen if you default and fail to repay your car loan. A lender may charge off auto loan debts that become 120 days past due. Lenders may also charge off car loan debts deemed uncollectible.
Auto loan charge off practices may damage your credit score. Below we highlight how a lender may charge off on car loan debts.
Key Points
• A charge-off on a car loan is recorded when payments are 120 days overdue or deemed uncollectible.
• Charge-offs severely impact credit scores and can remain on reports for up to seven years.
• Repossession may occur if payments are not made, leading to additional debt.
• Legal consequences include possible vehicle repossession and deficiency judgments.
• To avoid charge-offs, make timely payments, consider a cheaper car, or refinance for lower payments.
How Does a Car Loan Charge-Off Work?
A car loan charge may occur if you default and fail to repay your car loan. What is a charge-off on a car loan? It’s an accounting practice. If you’re 120 days past due or are experiencing serious delinquency, your lender may assume a loss and report your loan status to the credit bureaus as charged off.
A lender may charge off auto loan debt if you fail to make required car loan payments. This can cause your credit score to plunge. A charge off may not involve debt forgiveness, so you may be responsible for paying any outstanding principal, interest, and fees you owe on the charged-off account.
A charge off on car loan debt is an accounting practice used by lenders to record certain loan losses. Repossession, meanwhile, is when a lender seizes a vehicle from a borrower who had defaulted on a secured auto loan.
Lenders may charge off car loan debt if a borrower is 120 days past due on making a required car loan payment. As mentioned above, this can cause your credit score to plunge.
A charge off represents a loss to the lender, and repossession is a way that a lender may recover credit losses associated with a loan default. Borrowers who default on a secured auto loan may have their loan account charged off and their vehicle repossessed.
You may still owe money if the resale value of your repossessed vehicle is insufficient to cover the outstanding balance of principal, interest, and fees. Here are other factors to keep in mind if you’re having difficulty paying off your car loan:
• Your credit score may plunge if you lose your vehicle to car repossession
• It’s possible to reinstate your car loan after repossession
• Refinancing after repossession may be an option for some borrowers
How Does a Car Loan Charge-Off Impact My Credit Score?
A car loan charge off may cause your credit score to plunge. What is a charge-off on a car loan? It’s an accounting practice used by lenders to record certain loan losses. Your lender may charge off your car loan if you’re 120 days past due on making a required loan payment.
Having your car loan charged off can leave a derogatory mark on your credit report for seven years.
Borrowers with bad credit may have the following options:
• You may finance a vehicle purchase with a bad credit score, but the lender may charge a high rate of interest
• Borrowers with bad credit may qualify for subprime auto loans
A lender may issue a car loan charge off in the following situations:
• A borrower becomes 120 days past due on making a required car loan payment
• A lender determines that a borrower’s outstanding car loan debt is uncollectible
• A lender learns that a borrower’s outstanding car loan debt has been discharged in bankruptcy
Getting a car loan after bankruptcy can be difficult at best. A bankruptcy is a derogatory credit event that can appear on your credit report for up to 10 years.
What Happens If Your Car Loan Is Charged-Off?
Here is what may happen if your car loan is charged off:
• A lender may record your charged-off car loan as a credit loss for accounting purposes
• A lender may sell your unpaid debt to a debt collector
• You may still owe outstanding principal, interest, and fees if the lender charges off your car loan without forgiving your debt
• A lender may report your charged-off car loan status to the credit bureaus, which can damage your credit score
• You may lose your vehicle to repossession
• Your lender may sue you for a deficiency judgment if the resale value of your repossessed vehicle is insufficient to cover the balance of what you owe
You may avoid a car loan charge off by making required car loan payments when due. Paying off a car loan gives you full ownership of the car and may serve as evidence of your creditworthiness.
A car loan charge-off occurs when your lender takes an accounting loss as a direct result of you defaulting on your car loan. An auto loan charge off can damage your credit score and may lead to other negative consequences. Buying a cheaper car or refinancing for a lower monthly payment may help you avoid a car loan charge-off.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
With SoFi’s marketplace, you can quickly shop and explore options to refinance your vehicle.
FAQ
What happens when a car loan is charged off?
A lender may record your charged-off car loan as a credit loss for accounting purposes and may pursue recovery options. A lender, for example, may repossess your vehicle or sell your charged-off car loan account to a debt collector.
Is a charge-off better than a repossession?
A car loan charge off is not necessarily better than a repossession. A car loan charge-off in many cases may lead to repossession, and both events may cause your credit score to plunge. There are different types of car loans. Borrowers of unsecured car loans do not face the risk of repossession, whereas car repossession may cover the full amount of what you owe if you’ve defaulted on a secured car loan.
Is it possible to avoid a charge-off?
Yes, it’s possible to avoid a charge-off by making required loan payments when due. It may also be possible to avoid a charge-off by making payments within a grace period. You may avoid a charge-off by avoiding serious delinquency on a consumer loan.
Photo credit: iStock/FG Trade Latin
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Americans love their cars, trucks, and SUVs. Some love them so much they’ll own two vehicles at the same time — and often make payments on two auto loans as a result.
Having two auto loans can really add up, though. The average monthly payment for a new car in 2025 came in at $745, while a used car payment averaged $521, says Experian. Multiple auto loans can mean a significant household outlay. However, there may be reasons you need two vehicles (and, therefore, two auto loans).
Keep reading for more on why you may need two cars, how to get approved for a second auto loan, other types of loans to consider, and more.
Key Points
• Having an existing car loan doesn’t automatically disqualify you from getting another, but it can impact your approval chances.
• Lenders consider your credit score and debt-to-income ratio when evaluating a second car loan application.
• A larger down payment and lower loan amount can improve your chances of getting a second car loan.
• Maintaining a good payment history on your current car loan can strengthen your application for another.
• Shopping around for different lenders can help you find better terms and rates.
Can You Have Two Car Loans at Once?
You may ask, “Can I have two car loans at once?” The short answer to this question is yes, you can. There are, however, many factors and caveats to consider. Perhaps a better question is whether you should hold two auto loans at the same time. That answer depends on your unique financial and household situation.
In certain circumstances, having multiple car loans may make good financial and lifestyle sense. These circumstances can include any of the following:
You Have Two or More Breadwinners in the Home
If both spouses or life partners have jobs that require a commute and that commute can’t be shared in a single vehicle, owning two cars may well be a necessity, not a luxury.
You Sell or Trade Vehicles for a Living
There’s no shortage of collectors in the auto trade business who, for valid business reasons, may need to carry two or more auto loans simultaneously. While some individual auto sellers are committed to cash-only deals, some may prefer loan financing with a trusted lender.
You Own More Than One Home
While this certainly qualifies as a problem many people would like to have, owning two homes may necessitate the ownership of two cars and two car loans at the same time. This is especially true for homeowners with residences in two states. In that situation, it may make sense, at least for convenience’s sake, to hold two auto loans.
You Have a Small Business That Requires Two or More Vehicles
Many small business owners — think painters, contractors, florists, bakers, and other “on the move” trades — may need two or more vehicles. Consider a landscaping company owner whose business is growing and needs more trucks to get workers to an expanding list of client sites. Financing multiple trucks and trailers is well worth it if a business is generating more profit thanks to those purchases.
Your Teenager Needs a Set of Wheels to Get Around
Many parents know the reality of having to buy an extra car to get a college-bound son or daughter to campus (and give them a way to get around once they’re there).
Getting Approved for a Second Auto Loan While You Already Have a Car Loan
While it can be perfectly reasonable to hold multiple car loans, getting the second one may prove harder than getting the first. That’s primarily due to lender risk. Auto lenders may be more reluctant to extend a second auto loan to an individual. That said, getting approved isn’t insurmountable.
Know the Qualifications for a Second Loan Approval
Auto lenders and banks will typically give extra scrutiny to current auto loan borrowers seeking a second car loan. The hurdles to a second loan may include the following:
• Your credit history.Personal credit remains the primary barometer for auto lenders deciding whether or not to approve a second car loan. You’ll need to show you’re making on-time payments, you’re not overusing credit (i.e., keeping your debt-to-income ratio low), and you have a robust FICO® Score. Any score over 660 can put you in prime position for a second auto loan.
• Your annual income. Since you already have an active auto loan that hasn’t been repaid, lenders will focus particularly on your income. Specifically, the lender usually wants to see if your income can easily cover a second auto loan. Since auto purchases also lead to additional expenses, like maintenance, repair, gasoline, insurance, and state registration fees, your annual income should be able to handle not only the car loan, but the expenses that go with auto ownership.
• Debt-to-income ratio (DTI). Overall household debt compared with income is a big deal to auto lenders reviewing a second auto loan application. Ideally, your DTI ratio would be about 35%. More debt could lead to an auto loan rejection.
• The second vehicle’s value. Auto lenders will also study your second car’s estimated value. In general, the less expensive the vehicle is, the better your chances of getting a second auto loan approved. The less cash you borrow, the better your odds of repaying the loan.
• Your down payment. Additionally, it’s helpful to bring a hefty down payment on a car. Anything more than 20% of the vehicle’s estimated value is likely to help your cause with a lender.
Consider Getting a Cosigner
If getting a second car loan stretches your income (or if a lender thinks it could), it may help to get a cosigner. A car loan cosigner should be someone you trust and who has a strong credit history and good income.
Just as when you’re getting a cosigner for a refinance, this person must also be willing to share the responsibility of the loan with you. If they cosign, that means that if you can’t make a payment, they will be responsible. A cosigner can improve your chances of getting a loan because they may reduce risks for the lender.
Taking on a Personal Loan vs Traditional Auto Loan
Since the stakes are higher with a second auto loan, overextended borrowers may need to expand their vehicle financing options.
One way to do that is to weigh a traditional auto loan against a personal loan. Sometimes it can be easier to grab online personal loans, but there are risk factors involved with both personal loans and regular auto loans.
Here’s a closer look at some of the factors involved:
• Loan terms. Loan repayment timelines are about the same with both personal loans and traditional auto loans. Personal loans usually need to be paid back within two to seven years while a regular car loan repayment period stands at between three to seven years. Lenders of exotic car financing, however, may offer 144-month auto loans.
• Down payments.Down payments are not required for a personal loan, but they may be required with traditional car loans.
• Loan fees. Personal loan origination fees can be as high as 10% in some instances, whereas loan fees for regular car loans usually range between 1% and 2% of the loan amount. The finance charges on a car loan may consist of interest and fees.
• Collateral. Personal loans for autos typically require no collateral. That’s not the case with traditional auto loans, where the vehicle itself is usually the collateral. There are multiple types of car loans, including secured auto loans and unsecured auto loans.
So, which is right for you as a second car loan: An auto loan or a personal loan? The answer depends. If you can get an auto loan and you can afford a down payment, you will likely pay less in interest and fees. However, if you are having trouble finding an auto loan or don’t have a down payment at the ready, an unsecured personal loan could be what it takes to let you get that second car.
Balancing two auto loans simultaneously could be challenging, but it may be doable if you have a decent income and a history of on-time payments. Just be sure you really need to have two quality vehicles at the same time.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
With refinancing, you could save big by lowering your interest or lowering your monthly payments.
FAQ
Can you get one loan if you’re buying two cars at the same time?
Yes, you can get one loan to buy two cars simultaneously, but it depends on the lender’s policies. Some may allow it if you have a strong credit score and can manage the higher loan amount. Others might require separate loans for each car.
How do you get a second car loan if you already have one?
To get a second car loan, ensure your credit score is strong and your debt-to-income ratio is manageable. Shop around for lenders, provide proof of income, and consider a larger down payment. Be prepared for a thorough credit check and potential higher interest rates.
How many car loans can one person have?
There is no set limit to the number of car loans one person can have, but lenders typically consider your debt-to-income ratio and credit score. Having multiple car loans can affect your credit and may make it harder to qualify for additional loans.
Photo credit: iStock/Jinda Noipho
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
The make and model of a car refer to the brand of vehicle and the type of product a car company is offering. For example, when you refer to a Honda Accord, you are referring to both its make, Honda, and the product the auto company is selling, their Accord model.
Understanding the difference between make and model is important. It has implications for what features you will be offered as a consumer, the cost of the vehicle, insurance rates, and financing.
Key Points
• You can think of the make of a car being the brand and the model being the specific style of a car within that brand.
• Car make and model influence features, costs, and financing, and affect engine type, interior quality, insurance rates, and loan terms.
• Same model cars vary in body styles, trim levels, and engine types, offering diverse options.
• Luxury brands and advanced models are pricier and costlier to maintain than economical ones.
• Make and model consideration is vital for budgeting and meeting personal needs when buying a car.
What Is the Make and Model of a Car?
The make of a car is synonymous with its brand. It may also be the same as the manufacturer of the vehicle, but this is not necessarily the case. For example, while Ford is both a make and a manufacturer, the Ford Motor Company also owns Lincoln, which is another make.
The make of a car will typically offer a number of different models under its brand name. The model of a car is a specific motor vehicle that belongs to a make brand. The model helps you identify exactly what type of vehicle you’re getting. However, the model may also refer to more than one body style.
For example, the Honda Accord has been offered as a sedan, a hatchback, and a wagon. Models often include numbers to help differentiate between them. Any model of car can vary year to year, so using the year in conjunction with make and model can help you identify an exact product.
Listed below are various make and model of car examples:
Make Examples
• Acura
• Audi
• BMW
• Chevrolet
• Chrysler
• Dodge
• Ford
• GMC
• Honda
• Nissan
• Tesla
• Toyota
Model Examples
Here are some of the most popular makes and models in the U.S.:
• Ford F-Series
• Chevrolet Silverado
• Toyota Rav4
• Tesla Model Y
• Honda CR-V
Differences Between Vehicles of the Same Model
Make and model can vary depending on what year a car is produced and it can also encompass a number of different features, from body style to trim.
Body Styles
The make and model of a vehicle may be offered in a variety of body styles. Here are some common examples:
• Sedan: Offers four doors and a traditional trunk and may come in a range of sizes from small to full-size.
• Wagon: Has four doors, an extended roof, and a hatch door in place of a trunk.
• Hatchback: Traditional hatchbacks have been made like small sedans with a hatch door in the back. Recently, manufacturers have been putting this feature on larger vehicles.
• Sport Utility Vehicle (SUV): These tend to be tall, have a higher seating position, and offer more ground clearance than cars like sedans.
• Pickup Truck: Offers a cab in front and an open bed in the rear of the vehicle.
• Minivan: Built for carrying a lot of people and cargo, minivans tend to be tall, offer a lot of space, sliding doors, and a hatch in the rear.
Trim Level
Trim levels are essentially various versions of a model, each offering different features. Higher trim levels offer more equipment and may include the use of better quality materials in the vehicle interior. Examples are leather upholstery and higher-quality materials for flooring and side panels.
The model year denotes the year in which a vehicle from a particular fleet is produced. Confusingly, manufacture often begins in the year preceding the model year. That’s why in 2025 you could already be seeing 2026 models appearing at car dealerships.
It’s important to pay attention to model years because models can undergo big design changes from year to year.
Cars of the same model may have different engine sizes and types. The engine size may be measured in liters, such as a 2.5-liter engine with four cylinders or a 3.5-liter engine with six cylinders. A smaller engine may generate better fuel economy than a larger engine, while a larger engine may generate more torque and horsepower.
The engine type of a vehicle can be gasoline or diesel. This is the case for models with an internal combustion engine. All-electric vehicles don’t have internal combustion engines and run on electric motors fueled by rechargeable batteries instead.
Vehicles can have different drivelines, including all-wheel drive (AWD), rear-wheel drive (RWD), and front-wheel drive (FWD):
• AWD vehicles have the means to distribute torque to all wheels on the vehicle.
• RWD vehicles distribute torque from the engine to the rear wheels only.
• FWD vehicles distribute torque from the engine to the front wheels only.
Quality of Interiors, Speakers, and More
Cars of the same model may have different interior features. Some versions of a car model, for example, may feature leather-trimmed seats with multi-stage heating. Some versions may feature more speakers than the base model, and premium versions may feature a sunroof.
When choosing what car to buy, make and model are not only important considerations when deciding what features you want or need, but they also have a financial impact.
May Impact Auto Insurance
Before settling on a make and model, consider that more expensive makes are, in turn, more expensive to insure. That’s because luxury vehicles like BMWs or a Lexus are pricier to repair or replace than more economical cars like a Honda. Even buying a classic car can saddle you with high insurance premiums.
Insurance may also be pricier for factors associated with different models, such as horsepower. The more powerful an engine, the more it may cost to insure since it can be driven at higher speeds.
Using Finder® data, the table below highlights how the make of your vehicle can influence the insurance rate you pay:
Make
Average monthly premium
Ferrari
$913
Aston Martin
$548
Lamborghini
$502
Lotus
$444
Maserati
$411
Ford
$185
Hyundai
$180
Subaru
$168
Acura
$167
Honda
$161
Price of the Vehicle
Make and model will also have an impact on price. Of course, luxury brands will tend to cost consumers more to buy, as will models with extra features. Some makes and models hold their value longer than others, making them more expensive to buy on the used market.
Car Loan Terms
Because make and model have such a big impact on price, they will in turn have an impact on car loan requirements, including if you decide to refinance your vehicle.
More expensive vehicles may have higher monthly payments and might require you to take on a loan with a longer term, which can translate into more interest payments over time.
Auto Loan Refinancing
Your car’s book value, which is largely determined by make and model, may have a big impact if you decide to refinance your auto loan.
Lenders use a metric called loan-to-value (LTV) ratio to help them determine whether to refinance your auto loan. LTV compares how much you owe on your vehicle to how much your car is worth and must be considered when weighing the risks and rewards of refinancing.
If your car is worth less than the amount you owe, you may have difficulty securing refinancing. Consider how soon you can refinance to increase your chances of securing a favorable loan.
Getting a Title or Plates
The true cost of refinancing a car can include registration and title transfer fees. Some states may require you to re-register your car when you refinance. Some states may also charge a title transfer fee as the title moves from your old lender to the new one.
Taking a Vehicle in for Maintenance or Repairs
Taking a vehicle in for maintenance or repairs can be costly, but getting a cash out auto refinance can help you borrow money to cover such expenses. If you have sufficient equity in your car, a cash out auto refinance can replace your existing car loan with a larger-sized loan. The cash that you borrow from a cash out auto refinance may have few restrictions on how you may use the funds.
How Does Make and Model Affect Loan Refinancing Rates?
The make and model of a vehicle may have no impact or little impact on auto loan refinancing rates. Refinancing may give you a lower monthly payment by giving you a longer term or lower interest rate.
Here are some additional points to consider when evaluating whether refinancing is right for you:
• Refinancing for a lower monthly payment in some cases may extend your term, and extending your term can saddle you with more interest charges over the life of your loan.
• An auto loan refinance calculator can help you see whether a refinanced loan offer may increase or decrease your total interest costs.
• Subprime borrowers may qualify for bad credit refinancing, but they are likely to qualify for steeper interest rates.
• In general, average auto loan refinancing interest rates are lower for borrowers with excellent credit than borrowers with bad credit.
The Takeaway
Understanding make and model can help you buy a car that meets your needs in terms of capabilities and specifications. It can also help keep you on budget, offering insight into how much you’ll pay for insurance or what kinds of rates you might get if you take out or refinance an auto loan.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
With SoFi’s marketplace, you can quickly shop and explore options to refinance your vehicle.
FAQ
How many different makes and models of cars are there in total?
There are dozens of car makes and hundreds of models, including high-maintenance luxury cars. It can be difficult to quantify the total number, considering there are numerous makes and models sold in the United States and around the world.
How do you find out your VIN?
You may find your vehicle identification number located on the driver’s side dashboard of your car. Your VIN may also be listed in your car registration and insurance documents.
What is the make and model of a car?
The easiest way to think of a vehicle’s make is to think of it as a brand name. A vehicle’s model further helps delineate what type of product you are buying from that brand. What is the model of a car? A model of car is a specific vehicle within the make brand.
What’s an example of the make and model of a car?
A Honda Civic is an example of a car make and model. Honda is the brand, and Civic tells you the type of vehicle the brand is offering. In this case, it is likely a compact sedan.
How do I find out the make and model of my car?
Take a look at the logos, emblems, and badges on the exterior of your car to determine make and model. Barring that, decoding your vehicle identification number (VIN) online may provide this information.
Photo credit: iStock/Scharfsinn86
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
When you’re shopping for an auto loan, it can be tempting to take out a loan with a longer term. That’s because the monthly payment can be substantially smaller than it would be for a loan with a shorter term. Getting more money in your pocket each month may well seem like a smart financial move.
But should you really opt for an 84-month auto loan? You could pay a higher interest and more interest over the life of the loan. Here, consider the pros and cons of a long-term car loan.
Key Points
• 84-month auto loans typically offer lower monthly payments, making expensive cars more affordable.
• Lower payments can free up funds for other financial goals, such as saving or paying off debt.
• Disadvantages include higher total interest costs and the risk of owing more than the car’s value.
• Alternatives to 84-month loans include buying a cheaper car, choosing a used car, making a bigger down payment, leasing, or paying off early.
• A cosigner can help secure lower interest rates, reducing the financial burden of the loan.
What Is an 84-month Car Loan?
An 84-month car loan is a financing agreement to buy a new or used vehicle with a seven-year loan offer. It’s also one of the long-term car financing options that exceeds the U.S. national average, according to Experian data.
The average car loan term was 68.48 months for new car financing and 67.41 months for used car financing, according to a recent Experian’s State of the Automotive Finance Market report.
Anything above the national average can be considered a long-term car loan, including 84-month and 144-month auto loan contracts.
Is an 84-month car loan bad? That depends on your personal circumstances. An 84-month car loan could be right for you if a seven-year loan term works best for you and your financial situation.
Potential Benefits of an 84-Month Auto Loan
There can be some advantages to choosing an 84-month car loan, depending on your unique financial situation:
Lower Monthly Payments
When shopping for a car loan, choosing a longer repayment length can mean a lower monthly payment. For example, a $30,000 loan with a 6% fixed interest rate would charge $579.98 per month if there was a 60-month term. But payments for the same loan amount with an 84-month auto loan would be $438.26 per month.
Ability to Purchase a More Expensive Car
You might be able to afford a pricier or more luxurious car by choosing an 84-month auto loan. Choosing a longer term can give you a lower monthly payment compared with choosing a shorter term.
More Chances to Refinance
With longer car loan terms, there’s more time to consider auto refinancing down the line. You can refinance for a lower annual percentage rate (APR), although you may pay more interest over the life of the loan if you refinance with an extended term.
You can even consider refinancing your auto loan with bad credit, especially if you find a cosigner whose credit is in good standing.
A More Flexible Monthly Budget
By opting for a smaller monthly payment, you could make more room in your budget for other financial goals. These might include the following:
• Paying down high-interest debt
• Putting away funds for retirement
• Contributing to an emergency fund for unexpected expenses
0% Interest
An 84-month auto loan in some cases may include a 0% interest rate. Consumers with good credit may qualify for 0% APR auto loans.
In general, good auto loan interest rates fall under 7%. The average interest rate on new car loans in mid-2025 stood at 6.73%, according to Experian data.
Interest on car loans can depend on the following factors:
• Does the loan use simple interest or precomputed interest?
• Is the loan interest-free with 0% APR?
• Does the loan have a fixed interest rate or a variable rate?
Simple interest auto loans and precomputed interest auto loans are among the different types of car loans available to consumers. A simple interest car loan charges simple interest on the outstanding balance of your loan each month, whereas precomputed interest auto loans charge interest based on upfront calculations.
A 0% APR car loan does not charge interest whatsoever. Finance companies affiliated with auto manufacturers may offer interest-free car loans as a sales tactic. These lenders, for example, may offer 0% APR on new cars of a specific make and model to entice consumers to make purchases.
Fixed-rate car loans have an interest rate that will never change over the life of the loan. Variable-rate car loans, meanwhile, have an interest rate that can fluctuate over the life of the loan depending on market conditions.
Consumers may wonder what happens to a car loan in case of death. The answer is that car loans do not simply disappear when a borrower dies. A surviving spouse may be responsible for paying the debt, or a lender may move to repossess the vehicle.
Potential Drawbacks of Taking on an 84-Month Auto Loan
After reading that list of pros, you might find yourself wondering if an 84-month car loan is ever a bad idea. Here are a few of the potential downsides and risks to securing an 84-month car loan:
Overall Higher Cost
While a lower monthly payment can be a benefit, it doesn’t necessarily mean lower overall costs. Unless you qualify for 0% APR, an 84-month auto loan typically costs more than a 60-month auto loan. That’s because paying interest over a longer term raises your borrowing costs.
Higher Interest Rates
Unless you qualify for 0% APR, 84-month car loans may feature higher interest rates than loans with shorter terms. A higher interest rate can translate into higher borrowing costs over the life of your loan.
The way car loans work is that lenders provide financing to help borrowers purchase a new or used vehicle. Borrowers are expected to repay the car loan over a set term, and these loans may include interest charges. Lenders may offer higher interest rates on long-term car loans and lower rates on loans with shorter terms to encourage clients to repay their debt more quickly.
Risk of Going Upside Down on the Loan
An upside down auto loan means that you owe more than the car is worth. When auto lenders shrink the monthly payment, it extends the amount of time you spend paying overall. The result? Building your equity in the vehicle may take a longer time, and it does say as depreciation typically increases.
A Lot Can Happen in 84 Months
While the average new-car loan length is a bit under 70 months, 84 months is seven years’ worth of your life. A lot can change in seven years — the length of your commute, the number of people using the car, wear-and-tear, repairs, and required maintenance. All of this could occur while you’re still on the hook for a long-term car loan, possibly without a warranty.
Not only that, you might start to notice newer vehicles sharing the roadways and feel the desire to purchase a fresher model or one with more advanced safety features. If you’re locked into an 84-month loan or owe more than your car is worth, you could be required to roll over what you still owe into a new loan just to purchase a new car.
Lack of Flexibility
Long-term car loans may limit your financial flexibility. Lenders may be unwilling to offer their best rates of interest on an 84-month car loan. An 84-month auto loan can keep you in debt for up to seven years and may become a heavy burden if your economic circumstances change for the worse over the life of your loan.
Lenders may impose late fees if you fail to make a timely payment on your loan. But lenders may also honor a car payment grace period before such penalties would apply.
When you’re looking at auto financing, your choices don’t have to boil down to just a long-term car loan vs. a short-term car loan. There are several other alternative approaches you might consider:
1. Purchase a Less Expensive Car
While a high-maintenance luxury vehicle can be enticing, setting your standards a bit lower could cut down on overall costs. Selecting a less-loaded model in the same line, for instance, might save you a significant amount overall.
2. Choose a Used Car
By picking a used automobile with low mileage, you can still get a reliable vehicle at a more reasonable cost. This can help you avoid taking out an 84-month car loan, and the deal might even come with added perks or warranties.
3. Make a Bigger Down Payment
The more money you can pay upfront when purchasing a car, the less you’ll need to borrow. With a smaller loan, the monthly payments will be less, so you might not have to opt for an 84-month auto loan.
4. Lease a Car Instead
When it comes to the choice between leasing or buying a car, it’s a particularly personal decision. Getting a short-term car lease can mean a lower down payment and lower monthly payments compared with buying a car. That said, leasing also comes with certain fees, restrictions, and penalties for going over on mileage, so it’s not necessarily a best fit for everyone. And of course, when you lease, you don’t own the car.
5. Make Higher Monthly Payments
An 84-month car loan doesn’t necessarily have to take seven years to pay off. You may make higher monthly payments to pay the debt off early. This might be worth considering if your loan doesn’t include prepayment penalties. Making higher monthly payments can minimize your interest charges over the life of your loan.
Prepaying a precomputed interest auto loan, however, may not be as beneficial as prepaying a simple interest auto loan. That’s because any refund you may get from prepaying a precomputed interest car loan is generally lower than what you might have saved if the loan had a simple-interest cost structure.
6. Get a Cosigner
Getting a cosigner who meets the lending requirements may help you qualify for car loans at lower rates of interest. A car loan cosigner is an individual who shares the financial responsibility of repaying the loan alongside the primary borrower, which reduces risk to the lender.
Borrowers and cosigners are expected to provide proof of identity and proof of income when applying for auto loan financing, among other requirements for a car loan.
If you’re drowning in car loan debt, you may wonder if someone can take over your car loan. Transferring an auto loan can be a complex process, but it may be an option for you.
While lower monthly payments may be appealing, taking on an 84-month car loan commitment could mean biting off more than you can financially chew. There are limited instances in which a long-term auto loan is actually worth it. Typically, opting for a standard auto loan can offer more benefits to your financial future, and refinancing can always be an option to consider.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
With refinancing, you could save big by lowering your interest or lowering your monthly payments.
FAQ
Do banks offer 84-month auto loans?
Yes, some banks may offer 84-month auto loans. A bank is a regulated financial institution with a federal or state-based banking charter to accept deposits from customers. Banks typically offer loans in addition to bank accounts.
What is the downside of financing a car for 84 months?
There can be multiple disadvantages to getting an 84-month car loan. One of the downsides is that borrowers may have difficulty getting above water if they’re carrying an outstanding loan balance greater than the value of the car. Another downside is that borrowers can face steep borrowing costs if the loan charges interest over the life of the loan.
What does 0% financing for 84 months mean?
The meaning of 0% financing for 84 months could mean a lender is offering an 84-month auto loan with the APR set at 0% over the life of the loan. While you are not paying interest, make sure you understand any fees being charged, which can raise the overall cost of the loan.
What is the longest-term car loan available?
Some lenders may offer 180-month car loans as their longest financing option. A 180-month car loan features a 15-year loan repayment schedule. You may consider long-term financing terms of up to 180 months when buying an exotic or classic vehicle.
Photo credit: iStock/Drazen Zigic
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Buying a car is one of the biggest purchases you may make, and with average prices in the tens of thousands, it’s a financial move that often requires financing or a loan.
Given high auto prices, it’s no surprise that people are borrowing more money than ever for their wheels — Americans have a combined $1.66 trillion in auto debt as of the second quarter of 2025. Indeed, borrowing money to cover the cost of a car is very common.
Whether learning the generalities of what is an auto loan or the specifics of how bank car loans work, there is information that can help, as well as a few options to be aware of when it comes to financing a vehicle.
Key Points
• To get a car loan, you need to apply with a lender, providing personal and financial information.
• The lender will review your credit score, income, and debt-to-income ratio to determine your eligibility and the terms of the loan.
• Car loans come with interest rates that can vary based on your credit score, the type of lender, and the loan term.
• A down payment is an initial amount of money you pay toward the car’s purchase price. Making a larger down payment can lower the loan amount, potentially reducing monthly payments and the total interest paid over the life of the loan.
• If you already have a car loan and are looking to lower your monthly payment, consider refinancing.
What Is a Car Loan?
Similar to other types of loans, getting a car loan means borrowing money from a lender, but specifically to cover the cost of buying a car.
There are various options and lenders available when looking for an auto loan, such as financing from dealerships, banks, credit unions, and nonbank financial institutions.
How Auto Loans Work
Car loans function similarly to other types of loans in that the borrower agrees to repay the amount borrowed over time, as outlined in the loan agreement. The amount of money that needs to be repaid includes the principal, interest, and any applicable fees.
One big difference between car loans and other types of loans is that borrowing money for a car almost always involves car loan collateral. While other loans may be either secured or unsecured, car loans typically are secured by the auto itself. In the event that the borrower can’t repay the loan, this leaves the lender with the ability to recoup that money via car repossession.
Auto loans may feature simple interest charges that do not compound. Even so, with the average car loan length coming in just shy of six years, it’s worth noting that the longer the amortization period, the greater the interest charges will be, even if monthly payments are lower with longer loan terms.
Loans with shorter terms under 60 months may feature lower interest on a car loan than loans with longer terms, further increasing potential car loan savings. This is because the longer the auto loan term, the riskier the lender deems it to be.
• Annual Percentage Rate: The annual percentage rate, also known as APR, is the interest rate and fees a lender may charge when offering financing. Lenders must disclose the APR in nearly all consumer credit transactions under the Truth in Lending Act, so consumers generally have the ability to compare APRs on car loans.
• Buyer: The buyer is the primary consumer who purchases the vehicle from a seller. The buyer may sign a buyer’s order when buying a new or used car.
• Down Payment: A down payment is the amount of money a buyer may pay upfront to reduce total financing costs. One way consumers may avoid upside down auto loans is by making a sizable down payment when buying new or used vehicles.
• Loan Term: The loan term is the total length of time that a borrower has to repay the debt in full. Auto loan terms are usually measured in months, such as 48 months, 60 months, 84 months, and even 144-month car financing.
• Seller: The seller is the private person or car dealership selling you the vehicle. A private party auto loan can provide you with financing to buy a used vehicle from a private person selling a car.
• Vehicle Identification Number: The vehicle identification number, also known as the VIN, is a unique serial number for a car. You may find the VIN on the driver’s side dashboard of a car.
What Types of Lenders Offer Car Loans?
Before a car buyer drives home with their new car, they’ll first have to obtain a loan if they plan to finance the purchase. This is commonly done through the car dealer, a bank, or a private lender. There are pros and cons to each option:
Banks
Qualifying for a bank car loan usually starts with a credit check. As with other types of loans, an individual with a high credit score is more likely to be approved and may pay lower interest because they are considered to be at a lower risk of defaulting than an individual with a low credit score.
Even if someone is concerned they don’t have the credit score needed to buy a car, it’s still worth applying, as a bank may allow a cosigner or offer a loan at a higher APR to account for the added risk. Many people can still get an auto loan with a 650 credit score. However, if someone is concerned about their score, they may want to prequalify for a loan to get an idea of their chances.
A bank will also likely want to see employment and income details, as well as a government-issued ID and proof of address. Some banks will also require information about the car the borrower wants to purchase.
Dealerships
A car dealer has a vested interest in the car purchase. After all, if the prospective buyer needs financing but is unable to get a car loan, the dealer won’t make the sale and won’t get paid. Documents required to qualify for dealer financing are generally the same as those required for bank financing: proof of employment, income, and residence. Vehicle information will, of course, already be known.
There are situations where this may work in the car buyer’s favor. For example, if the dealer has been falling short of sales quotas, they may be inclined to reduce interest rates or offer low or 0% interest financing to incentivize buyers.
Given that the average APR for a 60-month new car loan at commercial banks was 7.67% in the second quarter of 2025, the savings associated with such a promotion can be substantial. For a 60-month car loan to pay for an average-priced new car — $48,699 — the total paid over the term of the loan would be $58,786, including $10,087 in interest based on the average APR (not including any additional fees or taxes or accounting for a down payment).
Dealers may also offer greater financing flexibility, which can be a double-edged sword. They may be more likely to extend a loan to someone whose credit score would disqualify them at the bank and might encourage a longer loan term to make monthly payments more affordable. Keep in mind that this may increase the risk of default for some individuals.
Private Lenders
Some car buyers might not want to use bank or dealer financing, but still need some sort of loan to buy a car. Financing through a private lender can be another option to consider.
A private lender might be a friend or family member. If that’s not an option, peer-to-peer lending might be something to look into. P2P lending matches two individuals — one that has money to lend and one that needs a loan.
People who might not have the creditworthiness to qualify for a loan from a bank or dealership might be able to qualify for a P2P loan, as they sometimes have more flexible qualification requirements. Shorter credit histories or credit scores that are just “fair” might qualify for a P2P loan, whereas those might be cause for denial of a traditional auto loan.
Guaranteed asset protection, also known as GAP insurance, is an optional coverage that car drivers may purchase. If you’ve taken out an auto loan, GAP insurance may benefit you in the event that your vehicle gets totaled or stolen.
Standard auto insurance, including comprehensive coverage, may only insure the actual cash value of a damaged or stolen vehicle. This means the outstanding balance of your car loan may not be covered by your standard car insurance policy.
GAP insurance, meanwhile, can help ensure that you won’t have to continue paying a monthly car payment on a destroyed or stolen vehicle. GAP insurance can fill the gap in situations where comprehensive coverage may fall short.
Personal Loans vs Auto Loans
Borrowers may use personal loans for almost any household purpose, while auto loans are restricted to financing the purchase of a motor vehicle. The below table compares personal loans vs. auto loans:
Personal Loan
Auto Loan
Provides you with a lump sum of money and few restrictions on how you may use the funds
Provides you with financing exclusively for the purchase of a motor vehicle and no other purpose
Can have interest rates as high as 35.99%
Can have interest rates as low as 0%
Typically unsecured without pledging any assets as collateral, but secured options may exist
Typically secured by the vehicle as collateral, but unsecured options may exist
Different Types of Auto Loans
Below we highlight several different auto loans:
Secured vs Unsecured Auto Loans
The difference between secured vs. unsecured auto loans is that the vehicle serves as collateral on the secured loan, whereas borrowers pledge no assets as collateral on an unsecured car loan.
Lenders may seize the vehicle if a borrower defaults on the secured auto loan, which means secured auto loans present more risk to the borrower.
Unsecured auto loans present more risk to the lender. The interest rate you get on an unsecured auto loan, therefore, may be higher than the interest rate you might get with secured auto loans.
You may need good credit to qualify for an unsecured auto loan, and lenders may sue you for breach of contract if you fail to make required payments on the loan.
Simple vs Precomputed Interest Car Loans
A simple interest auto loan is a car loan that charges simple interest on the outstanding balance of your loan each month, while a precomputed interest car loan is a loan that calculates the finance charges up front and adds that to your principal loan balance from the outset.
Simple interest loans may include a fixed APR, and monthly payments on the loan go toward interest charges and repaying the principal loan amount. Paying simple interest on the outstanding balance of your loan means the amount of interest you owe will decrease as you pay down the principal.
With precomputed interest loans, the combined sum of your interest charges, principal loan amount, and any other finance charges represents your starting account balance. The lender would divide your starting account balance by the length of your term to calculate your monthly payment on the loan.
You may be entitled to a refund if you pay off the precomputed interest car loan early. Prepaying a precomputed interest auto loan, however, is generally not as beneficial as prepaying a simple interest auto loan. That’s because any refund you get from prepaying a precomputed interest loan is generally lower than what you might have saved if the loan had a simple interest cost structure.
Preapproved Auto Loans
Preapproved auto loans are a possible financing package you may get before visiting a dealership to buy a car. Banks, credit unions, and private lenders may offer these loans to creditworthy consumers.
Getting a lender’s preapproval means the lender tells you how much financing it is willing to offer you and the proposed terms and conditions. A preapproved auto loan is conditional and not necessarily a guarantee of financing, but some lenders may give you a check equal to your preapproved amount.
Going to a dealership with a preapproved auto loan means you don’t have to rely on the dealer for financing. A lender, however, may cancel your preapproved loan offer if you fail to meet its underwriting and qualification standards on the date of sale.
Other special loan types can include subprime auto loans for borrowers with bad credit scores below 600. Deep subprime borrowers had an average auto loan rate of 15.81% on new vehicle financing and 21.58% on used vehicle financing in Q1 2025. The average rate is generally much lower for borrowers with good credit scores above 660.
Here’s additional loan types for car financing or refinancing:
• No income verification car loans
• Military refinance auto loan
• 0% APR financing from captive finance companies affiliated with auto manufacturers
What Happens if an Auto Loan Is Not Paid Back?
Defaulting on any type of loan can negatively affect your credit score. Defaulting on a secured auto loan (or any secured loan, for that matter) means the lender can also initiate car repossession because the car was used as collateral.
Talking to your lender when you realize you’re going to have trouble making your auto loan payments is a good first step to take. Some lenders might have debt relief options, such as skipping a few payments or refinancing the loan, for example.
Some lenders might allow someone else to take over the payments on your loan. Having someone assume your loan typically requires similar documentation from that person as the original borrower provided when initially applying for the loan. The lender will want to make sure the new borrower will be able to make the payments.
Car Loan Requirements
Borrowers are generally expected to provide proof of identity and proof of income when applying for auto loan financing, among other requirements for a car loan.
You may present a passport, driver’s license, or other documentation issued by a government agency as proof of identity.
Pay stubs, bank statements, and W-2 tax forms may serve as proof of income. You may need the help of a car loan cosigner to qualify for a car loan with no proof of income.
Can Someone Take Over a Car Loan if Someone Dies?
What happens to a car loan when the borrower dies? The answer is that car loans do not simply disappear when a borrower dies. A surviving spouse may be responsible for paying the debt, or a lender may move to repossess the vehicle. This shows it’s possible for a third party to take over a car loan if and when the main borrower dies.
Taking over another person’s car loan doesn’t necessarily require a borrower’s death. If you’re drowning in car loan debt, you may wonder, “Can someone take over my car loan?” Transferring an auto loan can be a complex process, but it may be an option for you.
Car Loan Alternatives
Taking out a large loan to purchase a new car is not the only way to obtain a form of transportation. There are options to consider, such as:
• Saving up to buy the car with cash
• Save up a larger down payment so the amount financed is less
• Buying an affordable used car rather than a new car
Finding ways to make a car more affordable, regardless of financing, might be negotiating the price of the car, negotiating the trade-in value of the car you’re replacing (if that applies), or determining if any offered add-ons (such as extended warranty or service contract) are really worth the extra cost. Know what you are able to afford and don’t be afraid to walk away from a salesperson if you can’t come to an agreement.
Whether you plan to use a car for weekends away and shopping trips or it’s a must for your daily commute, it’s likely to be a costly purchase. If a vehicle purchase is necessary, finding the best car for your circumstances at a cost you can afford is an important part of your financial plan.
If you already have a car but are looking to lower your payment, consider auto loan refinancing. When you refinance your car, you pay off the existing loan with a new loan, ideally with a better rate and terms.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
With refinancing, you could save big by lowering your interest or lowering your monthly payments.
FAQ
Is getting a car loan in general a good idea?
It may be a good idea for you to get a car loan if you need a new or used vehicle and financing to buy one. Some consumers may qualify for 0% APR on a car loan. Getting a car loan can also help you build up your credit history, which can be important if you need to borrow additional money in the future.
Is it better to get car loans or bank loans?
If you need financing to buy a car, it might be better for you to get a car loan rather than a personal bank loan. The interest rate you get on a car loan may be lower than the interest rate you get on a personal bank loan.
Does a car loan amount include the down payment?
No, a car loan amount doesn’t include your down payment. The purpose of a down payment is to reduce the amount of money you need to borrow when financing a motor vehicle purchase. Putting money down gives you an equity stake in the vehicle before paying your first monthly payment on the loan.
Do car loans go directly into your bank account?
No, car loans typically do not go directly into your bank account. Instead, lenders usually send the funds directly to the car dealer or seller. For private party purchases, some lenders may issue a check or electronic transfer to the seller, ensuring the loan is used specifically for the vehicle purchase.
Photo credit: iStock/anyaberkut
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
