The term of your loan is the time you have to pay off your auto loan and take ownership of the vehicle. The loan terms are varied, but you cannot choose one at random. And, the length of your loan determines more than the length of your loan – it can also affect how much you pay for the car.
Loan terms explained
Loan terms are the amount of time you are allowed to make payments on your loan. They are usually displayed in months. For example, a four year term would be listed as a 48 month loan. The loans are generally offered in a range of terms ranging from about 24 to 96 months.
The length of your loan is determined by a number of factors, including your credit, the vehicle you choose, the lender you work with, and the amount you set aside. All of these things can affect the length of your loan, which in turn affects your monthly payment amount and the overall cost of your vehicle.
Loan terms and interest charges
To get a rough estimate of the monthly cost of a car, you can divide the vehicle’s selling price by the number of months of the loan term. However, to find out how many you are Actually going to pay, you have to factor in the interest charges. This is the cost of borrowing money, and the lower your credit score, the higher your interest rate is likely to be. The higher your interest rate, the more it costs you to borrow.
Here’s the trigger though: The longer you extend the term of your loan, the more you end up paying interest charges, as they accumulate daily based on your loan balance. Smaller loan payments each month from a long term loan mean more balance for longer and more interest charges overall.
Find your ideal loan term
When considering the length of your loan, there are a few things to keep in mind:
- Your monthly budget – If you need to lengthen your loan term just to fit a car payment into your budget, you may want to consider a cheaper vehicle. Lenders prefer that your combined car loan and insurance payments be no more than 15-20% of your gross monthly income.
- The big picture – Sure, you can make a smaller monthly payment when you have an 84 month loan versus a 48 month loan, but do you really want a car payment for the next seven years? How much will your vehicle be worth compared to what you paid in the end? A better plan is to pay the most you can comfortably afford for the shortest possible loan term.
- How many vehicles can you afford? – If you are unsure of the answer to this question, head over to our car loan estimator and payment calculator, to see an estimate of the car loan amount you may be eligible for and what your monthly payments may look like. according to the different loans. terms.
Find your next lender
Now that you know how the loan term affects your car loan costs, you can shop with confidence. And if you’re ready to get started with the auto financing process, we want to help!
Here has Auto Express Credit, we know these bad credit borrowers need someone on their side to make the journey a little smoother, and we’ve got the solution. With our expertise and our nationwide network of specialist finance dealers, we want to put you in touch with a local dealership that has the lending resources you are looking for.
The process is quick, free and easy to get started. Simply fill out our auto loan application form and we will take care of the research for you!