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What should the duration 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 tools and financial calculators that provide objective and original content. We also allow you to conduct your own research and compare data at no cost to help you make informed financial decisions. 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 offers that appear on this site are from companies who pay us. This compensation could affect how and where products appear on the site, such as such things as the order in which they be listed within the categories of listing, except where prohibited by law. Our loans, mortgages,, and other home loan products. However, this compensation will affect the information we publish, or the reviews that you read on this site. We do not cover the vast array of companies or financial offers that may be accessible to you.
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4 minutes read. Published August 19, 2022
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Mark Kantrowitz is an expert on student financial aid The FAFSA as well as scholarships, 529 plans, education tax benefits and student loans.
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The length of your vehicle financing is an important factor in deciding on the ideal auto loan. A longer loan term will lower the monthly payment however you’ll pay more in interest over the duration of your loan. A shorter loan term means you will be paying less interest overall but your monthly payments will be more expensive. How to determine the right term length When deciding on the length of your car loan be sure to consider how long the loan period in relation to the price of the car and your personal financial position. A longer loan period will reduce the monthly cost however it may not be the most suitable option if you can afford a higher loan cost or prefer a less expensive vehicle. Bankrate’s tip: It’s crucial to think about your budget and — both the transaction and the maintenance — prior to purchasing a car. Consider a car loan from your credit union or bank ahead of shopping for a vehicle. To find the ideal duration for your car loan, follow these steps: Determine your budget. This should be your monthly budget, and how much you want to put aside for the vehicle the car. Be aware of the possibility that your situation will change, and factor that in. Make sure you are prequalified with three lenders. A little research can help you qualify for a lower interest rate. A partnership with your local credit union may allow you better payments, especially if you have an existing relationship with them. Compare the total interest. Take your prequalification results and then plug them into the calculator to determine the amount you’ll have to be paying each month, and the amount of interest you would be paying in total. Make a decision. Consider both the monthly payment as well as the total cost when deciding which loan term is best suited to your needs. Long-term versus short-term auto loans While a longer loan gives you the chance to purchase a more costly car, it will also mean greater interest for a longer time. Therefore, even although the monthly installment is lower, the overall cost will be more expensive. An auto loan, on the other one hand, will have lower interest however a greater cost per month. When your spending plan isn’t spot on, or there’s a sudden change to your earning capacity, you could end up struggling with those payment. There is no perfect loan length for every driver take into consideration the advantages and drawbacks of each before making a decision on your next car. Benefits and drawbacks of an extended-term automobile loan A is an excellent option for those who’s budget can’t cover a higher monthly payment. Since your monthly installment will be less and it could help you afford an expensive car. But with a longer auto loan it will cost you more interest overall. A longer-term loan can also increase the chance of being caught in the middle of your loan or paying more than what the car is worth. This scenario can make selling or trading in the car more complicated. The advantages and disadvantages of the short-term auto loan Where long-term auto loans can mean an excessive quantity of fees, a shorter-term loan implies less interest overall. Also, your vehicle will be yours even faster. Along with this, newer at a fast rate in the first five years, meaning it’s unlikely that you’ll end up owing more than the car is worth for an extended time. If your budget is tight, signing off on the short-term loan is a more risky option. This is particularly true if you don’t have an enormous . To prevent this from happening, stay clear of expensive vehicles that may strain your budget. There are many reasons to think about a less loan duration There are several reasons to consider signing off on a shorter loan. You will pay off your loan earlier, which means you’ll be able to take advantage of the car you’ve purchased, and you don’t have the burden of a huge loan due to. Be aware of these important factors when you decide on the duration the loan. Less years to pay longer loan term could mean making payments for between five and seven years. A shorter, two-to four-year period will place you in complete possession of your vehicle much earlier and you’ll receive the money back in your budget each month and use it to pay down higher-interest debts or save. It’s less likely that you’ll be upside down on your loan If you need to sell or upgrade your vehicle and you’re in need of a new car, you’ll have the flexibility to make the necessary changes. It is likely that you won’t have an unsustainable balance over what your car’s value and it will be possible to trade it in when you’re ready to move on to a different ride. A higher resale value having a less chance of getting upside-down on your loan, getting your car paid off earlier is a sign that it’s worth more once you’ve finished the payment. That means if your situation alters and you’re forced to upgrade your car — or you just need a new car you’ll be able to obtain more value for your car than if you were to wait five or 7 years. It’s crucial to consider how much car you can truly afford. Beyond the total cost of the loan, consider how much you can put on your car every month — including gas and insurance. A shorter loan might not always be an option for the car of your dreams. However, if a comparable model is cheaper and could stop you from getting the longer-term loan, it may be worth the compromise. If you decide to go with the shorter or longer term make sure you obtain the best price possible. Find out more
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Written by
This article was generated with the help of automation technology, and then edited and fact-checked by an editor from our editorial staff.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are enthusiastic about helping readers gain the confidence to control their finances by providing clear, well-researched information that break down complex topics into manageable bites.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized expert on student financial aid
Mark Kantrowitz is an expert on student financial aid, the FAFSA as well as 529 plans, scholarships, education tax benefits and student loans.
Nationally acknowledged expert in student financial aid
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