Choosing between Short Term and Long Term Auto Loan
Life is a journey! And, buying a car will make your journey easier. Nevertheless, before you buy a car, selecting the right loan term is important. If you choose a short term auto loan, you will have to repay the loan over a short period of time. The term varies between one to three years.
On the other hand, a long term auto loan has additional time for repayment. The term varies between three to nine years. It is good to know the pros and cons of the auto loan term before you sign the contract. Take time for making comparisons and make the decision process a little easier. It is essential because you have to think about the bigger picture.
Short Term Auto Loan - Pay more for a Short Period of Time
Pay up Faster and Make a Way for your Dream Car
Buying a new car is a costly purchase. You need an auto loan to pay for the price of the car. Short term auto loan usually has a lower annual percentage rate. Remember, the shorter term the better it is for you. Short term guarantees you lower interest rates and higher monthly payments. It means you will pay up the auto loan with a low rate of interest.
There are several benefits of opting for a shorter loan term such as:
- You can enjoy low interest rates.
- You can get out of the auto loan debt in a short period of time.
- The biggest benefit is that it helps in freeing up your money quickly!
- It feels expensive at first, but with low interest rates, it will not hurt your financial situation.
- The car will have a higher re-sale value when you pay off the auto loan quickly.
- It can aid in improving your credit score.
As a car buyer, remember that a short term auto loan offers you multiple advantages only when you make large monthly payments. In addition, you will have to do everything to reduce the loan amount. It will ensure that the monthly payments do not become a burden for you. Consider, making a large down payment to the lender.
Also, remember to plan your expenses because auto loan payments will take an important chunk of your income and you will not be able to save money for the next couple of months.
Long Term Auto Loan - Buy an Expensive Car
If you are thinking of buying a luxurious car, a long term auto loan will be a good option for you. It is possible to afford the car expenses because monthly payments are low. The lenders will offer you affordable monthly payments in return of high interest rates. It means you can even buy a car outside your price range.
Many car buyers opt for a long term auto loan because:
- It offers low monthly payments.
- A car buyer with low income can afford a car easily.
- It is ideal if you want to buy a luxurious car.
- Regular monthly payments can increase your credit score.
However, you must remember that a long term auto loan stretches the monthly payments for a long time. In addition, you will have to cough up high interest rates to enjoy a longer loan term. Another problem is that you can be an upside down situation for a larger part of the term. It is a very risky situation because if the car breaks down, you will find it difficult to buy a new car.
As everyone has different income levels and repayment capacity, there is no one perfect loan term. When the lender offers you an auto loan term, do not be in a hurry. Determine the monthly payment that suits your household budget. Consider your future expenses. Think of major expenses such as a wedding, college fees, buying a house, etc. Pick the auto loan term accordingly.
Remember, life is too short for making monthly payments for a very long time. Therefore, it is important to think hard before you make the right decision.
:- Posted by Admin on 2nd July, 2022