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How long should the duration of your vehicle loan be? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators that provide objective and original content. This allows you to conduct your own research and compare data for free and help you make informed financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that are advertised on this site come from companies who pay us. This compensation could affect how and where products appear on this website, for example for instance, the order in which they may appear in the listing categories, except where prohibited by law. Our loans, mortgages,, and other products for home loans. However, this compensation will not influence the information we provide, or the reviews appear on this website. We do not cover the vast array of companies or financial deals that may be open to you.
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4 min read Published August 19, 2022
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The length of your vehicle financing is the most important thing to consider in deciding on the ideal auto loan. A longer loan period will reduce the monthly installment however you’ll end up paying more interest over the life of the loan. A shorter loan period means that you’ll be paying less interest overall but your monthly payments will be higher. How to determine the right term length When selecting your car loan take into consideration the length of the loan term in relation to the cost of the vehicle and your financial situation. A longer loan term will lower the amount of your monthly payments, but it might not be the best solution when you are able to pay for a larger loan amount or are willing to pay for purchasing a car that is less costly. Bankrate’s advice: It’s essential to look at your budget and both the transaction as well as the maintenance — prior to purchasing an automobile. Get for an auto loan with your bank or credit union before you shop for a vehicle. To determine the best time frame for your loan take these steps: Determine your budget. This should be your monthly budget, and the amount you wish to put aside for the vehicle itself. Consider how your finances will change, and consider that. Be sure to qualify with at least three lenders. Shopping around can help you qualify for the lowest interest rate. A partnership with your local credit union could afford you lower payments, particularly if you have an existing relationship with them. Check the total amount of amount of interest. Take your prequalification results and then plug them into the calculator to determine the amount you’ll be paying each month, and the amount of interest you’d be paying overall. Make a decision. Take into consideration both the monthly installment and the overall cost when deciding which loan timeframe is most suitable for 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 more interest over a longer period. Even while the monthly payments will be less, the overall cost will be more expensive. An auto loan, on the other hand, offers less interest paid, but a higher cost per month. If your budget isn’t spot on, or there’s a sudden shift in your income, you may end up struggling with those payment. There’s no ideal loan length for each driver, take into consideration the advantages and disadvantages of each prior to signing off on your next vehicle. Benefits and drawbacks of a long-term automobile loan A is an excellent option if your budget isn’t able to pay for a greater monthly installment. Since your monthly payment will be lower, it might also allow you to pay for a higher-priced vehicle. However, with a longer auto loan you’ll pay more in interest over the course of. A longer-term loan also increases the risk of being caught in the middle of your loan or paying more than what the car is worth. This could make selling or trading in the vehicle more difficult. The advantages and disadvantages of a short-term auto loan Where longer-term auto loans can result in an excessive amount of interest, a shorter term means less interest paid overall. This also means that the car will be yours even faster. In addition, the newer models are sold at a fast rate in the initial five years, which means it’s unlikely that you’ll end up owing more than what your vehicle is worth over an extended time. If your budget is in a pinch and you’re not sure if you can afford the short-term loan is a more risky option. This is particularly true if you don’t have a substantial . To prevent this from happening, stay away from expensive cars that may strain your budget. There are many reasons to think about a less loan term There are several reasons to sign off on the shorter loan. It will allow you to pay off your loan faster, which means that you’ll be able to take advantage of the vehicle you’ve bought and will not be left with the burden of a huge loan due to. Be aware of these important factors when deciding the length of the loan. Lower payments over time A longer loan period could mean payments for five to seven years. A shorter, two- to four-year loan will put you in the full ownership of your vehicle much earlier that means you’ll be able to get the money back in your budget each month and use it to pay down more expensive debts or save. You’re less likely to be upside-down in your loan If you’re looking to change or sell your car, you will have the flexibility to make the necessary changes. You likely won’t have more than what your car is worth, making it easier to swap out to get an alternative vehicle. Better resale value Similar to having a less chance of becoming over-paying on your loan, getting your car paid off earlier means it will be worth more once you’ve finished paying it off. This means that if your circumstance alters and you’re forced to upgrade -or just want something fresh — you’ll receive more than if you had to wait for five to seven years. The bottom line It’s important to consider the amount of car you can actually afford. Beyond the total price of the loan take into consideration how much you can put into your car every month — including gas and insurance. A shorter-term loan may not always be an choice for the automobile of your dreams. But if a similar model is more affordable and will stop you from getting an extended-term loan and it is worth the compromise. If you decide to go with a longer or shorter term, be sure to to obtain the best price possible. Learn more
The article was created with the help of automation technology, and then verified and edited by an editor from our editorial team.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.
Auto loans editor
Reviewed by Mark Kantrowtziz Reviewed by Nationally recognized student financial aid expert
Mark Kantrowitz is an expert on student financial aid, the FAFSA as well as scholarships, 529 plans educational tax benefits, student loans.
Nationally acknowledged expert in student financial aid
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