Short-Term vs Long-Term Car Loans
Ideally, car shoppers would buy their vehicles outright with cash in full. Of course, this isn’t realistic for most drivers. Thus, car loans are available to help shoppers finance for their vehicle with a payment plan that is affordable. Granted, not every car loan is the same and you may receive a few different offers. To help you select a car loan, we will focus on the advantages and disadvantages of both short-term and long-term car loans.
Advantages of a Short Car Loan
- You will pay less in interest
- You will own the vehicle sooner, allowing you to sell it for a higher resell-value if you choose
- Since the balance will be paid off early, you can make other financial goals
Disadvantages of a Short Car Loan
- You may have larger monthly payments
- A larger down payment may be required – consult your dealer as different dealerships will have different rules
Advantages of a Long-Term Car Loan
- You may be able to afford a more expensive vehicle
- Monthly payments may be lower than with a short-term loan, allowing more flexibility with your budget
- You may pay a lower down payment than with a short-term loan
Disadvantages of a Long-Term Car Loan
- You will make payments for a longer period of time
- You will end up paying more in interest
- The vehicle you purchase will have a lower resell-value than if you paid it off sooner
[ READ MORE: What is the 20/4/10 Budget Rule for Buying a Car? ]
How to Choose the Right Car Loan
So, how do you choose the right car loan? Ultimately, that depends on your financial situation. The best rule of thumb is to stick to a car loan that is as short as you can comfortably afford. For example, if your budget for car payments is $400 a month, you should try to choose a loan that costs $400 a month and avoid exceeding that number.
Here at U.S. Auto Sales, we are proud to help customers get pre-qualified for a car loan that best suits their budget. To learn more about our pre-qualification process, contact us and one of our representatives will be happy to help you.