When you take out a car loan, one of the most important factors to consider is the loan term — the number of months or years you agree to repay the loan. The loan term directly affects your car loan interest rate, total interest paid, and monthly payments. Whether you’re buying a new or used car, understanding how loan term influences your car loan interest rate can help you save money and make smarter financial decisions.

Here are three key ways your loan term affects your car loan interest rate:

1. Longer Loan Terms Usually Mean Higher Interest Rates

Many people choose longer loan terms — such as 5, 6, or even 7 years — because it lowers their monthly payments. However, a longer term usually comes with a higher car loan interest rate. Lenders charge higher interest rates for longer loans because they take on more risk. The longer it takes for you to repay the loan, the higher the chance of financial issues, late payments, or depreciation reducing the car’s value below the loan balance.