How Long Should Your Auto Loan Term Be?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - May 1, 2018

Everyone’s auto loan will be different, and one loan term may be better than another depending on a borrower’s financial situation. Both short- and long-term loans have pros and cons, but, in the end, it comes down to what a lender is willing to offer and what a borrower is most comfortable with.

Short-Term Loans

Shorter-term loans are the most ideal option if spending the least amount of money is the goal. But not everyone can afford to take out a loan that’s less than 60 months (five years), as shorter loan terms come with higher payments. Here are some of the benefits and drawbacks to a short loan term:

Advantages:

  • Loan is paid off earlier
  • Lower interest charges
  • Higher resale value possible
  • Decreased time of being upside down

Disadvantages:

  • May need a large down payment to keep the monthly payment affordable
  • Higher monthly payments for amount financed

Long-Term Loans

Financing a car is expensive. Sometimes, it makes sense for a borrower's budget to take out a longer-term auto loan since this lowers the monthly payment. Although longer loan terms typically come with higher interest rates, borrowers may have the chance to refinance for better terms once they’ve made on-time payments for at least two years and their credit has improved. Here are some of the benefits and drawbacks to a long loan term:

Advantages:

  • Lower monthly payments for amount financed
  • Even with a low down payment, the monthly payment is affordable

Disadvantages:

  • Loan takes longer to pay off
  • Vehicle’s resale value will typically be lower
  • Higher interest charges
  • Increased time of being upside down

Bottom Line

Whichever loan term you choose, make sure you pick a length that’ll work for your budget. Even though shorter loan terms are ideal, you might be able to take out a long-term loan and refinance later to save on interest charges.

If you’re in the market for a car loan, but aren’t sure where to start, let CarsDirect lead the way. We have an extensive network of special finance dealers who can help people in challenging credit situations. Let us connect you with a local dealership. Get started by filling out our auto loan request form today.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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