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How long should you let your automobile loan be? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by offering interactive financial calculators and tools, publishing original and objective content. This allows you to conduct research and compare data at no cost and help you make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies that compensate us. This compensation may impact how and where products appear on this website, for example such things as the sequence in which they be listed within the categories of listing, except where prohibited by law for our mortgage, home equity and other home loan products. However, this compensation will have no impact on the information we publish, or the reviews appear on this website. We do not include the universe of companies or financial deals that may be accessible to you.
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4 min read . Published August 19, 2022
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Deciding on the duration of your vehicle’s financing is a key step in deciding on the perfect auto loan. A longer loan term will lower your monthly payments however, you’ll be paying more interest over the course of your loan. A shorter loan term means you will pay less interest overall, but your monthly installments will be higher. What is the best term length when selecting the length of your car loan, consider how long the loan period in relation to the cost of the car as well as 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 manage a larger loan payment or don’t mind having a cheaper car. Bankrate’s tip: It’s important to consider your budget as well as both the transaction and the maintenance — prior to purchasing an automobile. Get for an auto loan with your bank or credit union prior to shopping for a vehicle. To find the right term length for your car loan Follow these steps: Establish your budget. This is your monthly budget as well as the amount you’d like to put aside for the vehicle the car. Consider how your finances will change, and factor that in. Prequalify with at least three lenders. A little research can help you qualify for a lower interest rate. Working with your local credit union can get you better payments, especially if you have an existing relationship with them. Compare the total interest. Use your prequalification data and plug them into an to see the amount you’ll have to pay each month and how much interest you’d pay in the long run. Make a decision. Think about both the monthly payments as well as the total price when deciding which loan term is best suited to your needs. Long-term versus short-term auto loans While a long loan gives you the chance to purchase a higher-priced car, it will also mean higher interest rates for a longer time. Therefore, even while the monthly payments is lower, the overall cost will be more costly. An auto loan however, on the other side, has less interest paid however a greater cost per month. In the event that your financial plan doesn’t seem spot right, or there’s a sudden change of your earnings, then you could end up struggling with those payment. There’s no one perfect loan length that is suitable for all drivers, so consider the benefits and disadvantages of each prior to signing off on your next vehicle. Benefits and drawbacks of the long-term automobile loan A is an excellent option for those who’s budget can’t afford a larger monthly payment. Since your monthly installment will be less this could also help you afford the cost of a more expensive vehicle. With a more lengthy auto loan you’ll pay more interest overall. A longer-term loan also increases the risk of getting yourself into a 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 When longer-term auto loans could result in an over amount of interest, a shorter-term loan means less interest paid overall. It also means that your vehicle will be available even sooner. Along with this, newer vehicles are sold at a faster rate over the first five years, meaning it’s unlikely that you’ll end up paying more than the car is worth for an extended period. If your budget is tight and you’re not sure if you can afford a short-term loan is a riskier choice. This is especially true when you don’t have a sizable . To avoid this, keep away from expensive cars that could eat up your budget. Reasons to consider a shorter loan duration There are many reasons to consider signing off on an earlier loan. You will pay off your loan faster, which means that you can take full advantage of the car you’ve purchased and will not be left with a large loan to pay off. Consider these top factors when you decide on the duration of the loan. Less years to pay longer loan period could mean payments for between five and seven years. A shorter, two- to four-year term will put you in complete possession of your car much sooner, which means you’ll get the money back in your monthly budget and can make use of it to pay down higher-interest debts or save. You’re less likely to be upside-down on your loan If you have to sell or upgrade your vehicle then you’ll have the flexibility to make the necessary changes. It is likely that you won’t have an unsustainable balance over what the value of your vehicle which makes it much easier to swap out when you’re ready for a different ride. Better resale value Similar to the lower risk of becoming over-paying on your loan the fact that you can pay off your car earlier means it will be worth more when you’re done the payment. This means that if your circumstance is changing and you have to make a change -or simply want something fresh — you’ll receive more as opposed to having to wait five or 7 years. The bottom line It’s important to think about what kind of car you could really afford. Outside of the overall amount of the loan think about how much you can pay towards your car each month, which includes gas and insurance. A shorter term may not be the ideal choice for the automobile of your dreams. But if a similar model is more affordable and will stop you from getting the longer-term loan and it is worth the tradeoff. No matter if you choose the shorter or longer term, be sure to to obtain the best price possible. Learn more
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Written by
The article was created by using automated technology. It was then thoroughly verified and edited by an editor on our editorial staff.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down complicated subjects into bite-sized pieces.
Auto loans editor
Reviewed by Mark Kantrowtziz Reviewed by Nationally recognized expert on student financial aid
Mark Kantrowitz is an expert on student financial aid, including the FAFSA and 529 plans, scholarships, education tax benefits and student loans.
Nationally anerkannt student financial aid expert
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