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What is the length of your car loan be? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering interactive financial calculators and tools, publishing original and objective content. This allows you to conduct your own research and compare data at no cost and help you make financial decisions with confidence. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this site come from companies who pay us. This compensation can affect the way and where products appear on this website, for example for instance, the order in which they may appear within the listing categories, except where prohibited by law. Our mortgage, home equity and other home loan products. This compensation, however, does affect the information we provide, or the reviews that you read on this site. We do not cover the entire universe of businesses or financial deals that may be open to you.
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4 min read . Published on August 19, 2022.
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Deciding on the duration of your vehicle’s financing is an important factor when you are trying to choose the perfect auto loan. A longer loan term will lower the monthly payment, but you will be paying more interest over the course of the loan. A shorter loan period means that you’ll pay less overall interest, however, your monthly payments will be more expensive. What is the best term length When selecting your car loan take into consideration how long the loan duration in relation to the cost of the car as well as your financial situation. A longer loan term will lower the monthly payment however it may not be the most suitable option if you can afford a higher loan amount or are willing to pay for having a cheaper car. Bankrate’s tip: It’s essential to look at your budget and both the transaction as well as the maintenance — prior to purchasing a car. Consider a car loan with your bank or credit union prior to shopping for a car. To find the right duration for your car loan, follow these steps: Decide on your budget. This is your monthly budget as well as how much you want to put aside for the vehicle it self. Consider the possibility that your situation will change, and consider that. Be sure to qualify with at least three lenders. Doing some research will help you qualify for a lower interest rate. Working with your local credit union can get you lower monthly payments, especially when you already have a relationship. Compare the total amount of interest. Take your prequalification results and add them to an account to calculate the amount you’ll pay each month and how much interest you will be paying in total. Make a decision. Think about both the monthly payments as well as the total cost when deciding which loan term is best suited to your needs. The long-term loan is more expensive than the short-term loans While a long loan can allow you to purchase a higher-priced automobile, it also means higher interest rates over a longer period. Therefore, even although the monthly installment will be lower, the overall cost will be more expensive. An auto loan however, on the other side, has lower interest however a greater cost per month. In the event that your financial plan doesn’t seem in the right place, or if you notice a sudden shift in your income, you might end up struggling with those monthly payments. There is no perfect loan length for every driver therefore, you should consider the advantages and disadvantages of each prior to you sign off on the next car. Benefits and drawbacks of an extended-term car loan A is a good option if your budget isn’t able to afford a larger monthly payment. Because your monthly payments will be less, it might also make it easier to afford a higher-priced vehicle. But with a longer auto loan it will cost you higher interest in the long run. A longer-term loan also increases the likelihood of finding yourself on your loan or owing more than the vehicle is worth. This scenario can make selling or trading in the vehicle more difficult. Advantages and disadvantages of an auto loan with a short term loan Where long-term auto loans could result in an over amount of interest, a shorter term implies less interest overall. This also means that your vehicle will be yours even faster. Additionally, cars are upgraded at a fast rate in the first five years, so it’s unlikely that you’ll be able to pay more than your car is worth over an extended time. If your budget is in a pinch and you’re not sure if you can afford a short-term loan is not a wise choice. This is particularly true if you don’t have an enormous . To avoid this, stay away from costly cars that could eat up your budget. Reasons to consider a shorter loan term There are several reasons to consider signing off on the shorter loan. You’ll pay off your loan earlier, which means you’ll get the most of the vehicle you’ve purchased and will not be left with the burden of a huge loan to pay off. Be aware of these important factors when deciding the length of your loan. Less years to pay longer loan term may mean payments for between five and seven years. A shorter, two- to four-year loan will put you in the full ownership of your car sooner and you’ll receive the cash back into your monthly budget and can use it to pay down high-interest debts or to save. It’s less likely that you’ll be upside down with your loan If you’re looking to sell or upgrade your car, you will have more flexibility to make the switch. It is likely that you won’t have an unsustainable balance over what the value of your vehicle which makes it much possible to trade it in to get another vehicle. Better resale value Similar to having a lower chance of getting upside-down on your loan, paying off your car sooner is a sign that it’s more valuable when you’re finished making payments. So if your financial situation alters and you’re forced to upgrade your car -or just desire a change — you’ll receive more than if you were to wait for five or seven years. The main thing is to consider how much car you can really afford. Beyond the total price of the loan take into consideration how much you can pay on your car every month, including fuel and insurance. A shorter term may not be the best option for the car you’ve always wanted. If a comparable car is less expensive and can prevent you from taking out an extended-term loan and it is worth the tradeoff. Whether you opt for either a shorter or longer-term ensure that you find the most affordable deal. Find out more
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Written by
The article was created using automation technology and thoroughly checked for accuracy and editing by an editor on our editorial staff.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain confidence to manage their finances through providing concise, well-researched and well-researched content that break down complex subjects into bite-sized pieces.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized student financial aid expert
Mark Kantrowitz is an expert on financial aid for students, the FAFSA as well as 529 plans, scholarships educational tax benefits, student loans.
Nationally anerkannt student financial aid expert
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