Do Shorter Loan Terms Benefit Bad Credit Car Buyers?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - April 13, 2018

People struggling with credit issues can benefit from keeping their car loan terms as short as possible.

Short Loan Terms Save Money

Shortening a loan term increases the monthly payment. This may not seem like something that’ll help, but choosing a shorter term can save a borrower thousands in interest charges over the life of their loan.

Most car loans use simple interest, which means that interest is only paid on the principal and accrues daily based on loan balance. The sooner a loan is paid, the less interest accrues.

For example:

  • A borrower takes out an $18,000 car loan. They have a seven percent interest rate, with a term of 72 months, and $2,500 down. They’ll be paying $264 a month for six years, making the total amount paid $19,026.70 (not including the initial down payment). Total interest charges paid on this loan will be approximately $3,527.
  • If this borrower cuts the loan term to 48 months (four years), they’ll increase their payment to $371 a month but save over $1,000 in interest charges. The total loan cost now is only $17,815, with only $2,316 of interest charges.

Remember, interest charges accrue on the principal of the loan, so if a borrower puts down more or less money as a down payment, this can also change the amount of interest they’ll ultimately pay.

Build Your Credit Quicker

A car loan is a great tool for building credit. When a borrower makes all their loan payments on time and in full, it can greatly improve their credit.

If a borrower sees significant improvement in their credit score by the end of their loan, chances are they’ll be able to qualify for a traditional car loan with a better interest rate the next time they need a vehicle, rather than having to settle for a bad credit car loan.

Getting Started With Us

At CarsDirect, we know how difficult it can be to find a lender that can work with credit challenges. Because these lenders often work exclusively through special finance dealers, it can be hard to know where to begin the search for your next car loan.

You don’t have to wonder when you fill out our simple, free, no-obligation auto loan request form online. We can help guide you toward a local special finance dealer that has the lenders available to help people who are struggling with bad credit. Get started right now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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