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What is the length of the duration of your vehicle loan be? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. We also allow users to conduct research and compare information for free and help you make informed financial decisions. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies who pay us. This compensation can affect the way and where products appear on this site, including such things as the order in which they may be listed within the categories of listing, except where prohibited by law. Our loans, mortgages, and other home lending 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 offerings that could be available to you.
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4 min read Published on August 19, 2022.
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Choosing the length of your vehicle’s financing is an important factor in deciding on the right auto loan. A longer loan term will lower the monthly payments however you’ll be paying more interest over the duration that of the loan. A shorter loan term means that you’ll pay less interest overall, but your monthly installments will be higher. How to determine the right term length When selecting the length of your car loan, consider your loan term in relation to the cost of the car and your financial situation. A longer loan term will lower the monthly cost but may not be the ideal choice when you are able to afford a higher loan payment or don’t mind a less expensive vehicle. Bankrate’s advice: It’s crucial to think about your budget and both the transaction and the maintenance costs before you purchase the car. Apply for an auto loan through your credit union or bank before you shop for a vehicle. To find the ideal term length for your car loan, follow these steps: Establish your budget. This should be your monthly budget and the amount you wish to spend on the car it self. Think about the possibility that your situation is likely to change and consider that. Be sure to qualify with at least three lenders. Doing some research will help you qualify for an interest rate that is lower. The local credit union may allow you lower payments, particularly if you have an existing relationship with them. Compare the total rates of interest. Consider your prequalification results and then plug them into an to see the amount you’ll pay each month and how much interest you will be paying overall. 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. Short-term and long-term auto loans Although a longer loan gives you the chance to buy a more expensive car, it will also mean greater interest for a longer time. So even although the monthly installment will be lower but the total cost will be more expensive. A shorter auto loan however, on the other hand, offers the lowest interest rate, but a higher monthly cost. If your budget isn’t spot on, or there’s a sudden change to your earning capacity, you may find yourself struggling with the monthly payments. There is no perfect loan length that is suitable for all drivers, so consider the benefits and disadvantages of each prior to you sign off on your next vehicle. The advantages and disadvantages of a long-term car loan A is a good choice if your budget cannot afford a larger monthly payment. Since your monthly installment will be lower this could also help you afford a higher-priced vehicle. However, with a longer auto loan you’ll pay higher interest in the long run. A longer-term loan also increases the risk of getting yourself into a loan or having to pay more than the car is worth. This can result in selling or trading in the car more complicated. The advantages and disadvantages of the short-term auto loan While long-term auto loans can result in an excessive quantity of fees, a shorter-term loan means less interest paid overall. Also, your car will be fully yours much faster. In addition, the newer models are sold cars are selling at a rapid rate within the first five years, meaning it’s likely you won’t end up paying more than what your vehicle is worth over an extended time. If your budget is tight taking out a short-term loan is a riskier choice. This is especially true when you don’t have an enormous . To avoid this, keep away from costly cars that could eat up your budget. The reasons to think about a shorter loan term There are several advantages to signing up for the shorter loan. You will be able to pay off your loan earlier, which means you’ll be able to take advantage of the car you’ve purchased and won’t be left with a large loan due to. Take into consideration these factors when you decide on the duration of the loan. Fewer years to pay A longer loan term could mean making payments over five to seven years. A shorter, two-to four-year period will place you in the full ownership of your car sooner, which means you’ll get the cash back into your monthly budget , and you can use it to pay down high-interest debts or to save. You’re less likely to be upside-down with your loan If you’re looking to sell or upgrade your vehicle and you’re in need of a new car, you’ll have more flexibility to make the switch. It is likely that you won’t have a higher balance than your car is worth and it will be possible to trade it in when you’re ready to move on to another vehicle. A higher resale value having a less chance of being upside-down on your loan, getting your car paid off earlier means it will be more valuable when you’re finished making payments. So if your financial situation changes, and you need to upgrade -or simply want something fresh — you’ll obtain more value for your car than if you had to wait for five to seven years. The main thing is to consider what kind of car you could really afford. Beyond the total cost of the loan, consider how much you can put into your car every month — including gas and insurance. A shorter loan might not be the best option for the car you’ve always wanted. If a comparable car is more affordable and will stop you from getting the longer-term loan, it may be worth the tradeoff. Whether you opt for a longer or shorter term, be sure to to get the best deal possible. Learn more
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Written by
This article was generated with the help of automation technology, and then verified and edited by an editor on our editorial team.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances through providing clear, well-researched information that break down complex topics into digestible chunks.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized student financial aid expert
Mark Kantrowitz is an expert on student financial aid, including the FAFSA and scholarships, 529 plans, education tax benefits and student loans.
Nationally anerkannt student financial aid expert
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