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What should the duration of 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 decisions by providing you with interactive tools and financial calculators as well as publishing original and impartial content. This allows you to conduct your own research and compare information for free and 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 products that are advertised on this site come from companies that pay us. This compensation can affect the way and where products appear on this website, for example, for example, the order in which they may appear within the listing categories and other categories, unless prohibited by law. This applies to our loan products, such as mortgages and home equity and other products for home loans. However, this compensation will not influence the content we publish or the reviews appear on this website. We do not include the universe of companies or financial offers that may be accessible to you.

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4 min read . Published 19 August 2022

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Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances through providing clear, well-researched information that breaks down complicated topics into bite-sized pieces.

Review by Mark Kantrowtziz. Reviewed by Nationally acknowledged student financial aid expert

Mark Kantrowitz is an expert on student financial aid, the FAFSA as well as 529 plans, scholarships, education tax benefits and student loans.

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who ensure everything we publish ensures that everything we publish is accurate, objective and reliable. The loans journalists and editors are focused on the points consumers care about the most — the various types of loans available as well as the best rates, the best lenders, ways to repay debt, and more — so you can feel confident when making your investment.

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Deciding on the duration of your vehicle financing is an important factor when it comes to picking the right auto loan. A longer loan term will lower your monthly payment however, you’ll pay more in interest over the life that of the loan. A shorter loan term means you will be paying less interest overall but your monthly installments will be higher. How do you determine the appropriate term length When deciding on your car loan, consider the length of the loan duration with respect to the value of the vehicle and your personal financial position. A longer loan term will lower the monthly cost however it may not be the most suitable option for those who can afford a higher loan cost or prefer purchasing a car that is less costly. Bankrate tip: It is essential to look at your budget as well as both the transaction as well as the maintenance costs before you purchase a car. Consider a car loan from your credit union or bank before you shop for a vehicle. To find the right time frame for your loan Follow these steps: Determine your budget. It should be your monthly budget as well as how much you want to spend on the car it self. Consider how your finances will change, and consider that. Be sure to qualify with at least three lenders. Shopping around can help you qualify for an interest rate that is lower. Working with your local credit union can get you lower monthly payments, especially when you already have a relationship with them. Check the total amount of rates of interest. Consider your prequalification results and add them to an to see how much you will pay each month and how much interest you’d be paying in total. Make a decision. Think about both the monthly payments and the overall cost before deciding on which loan term is best suited to your requirements. Long-term versus short-term auto loans While a longer loan can allow you to buy a more expensive vehicle, it does mean greater interest over a longer period. So even while the monthly payments is lower, the overall price will be higher. A shorter auto loan however, on the other side, has lower interest however a greater monthly cost. In the event that your financial plan doesn’t seem spot on, or you notice a sudden shift to your earning capacity, you may be struggling to make those monthly payments. There is no perfect loan length for each driver, take into consideration the advantages and disadvantages of each prior to making a decision on your next vehicle. Benefits and drawbacks of an extended-term auto loan A is a good option for those who’s budget can’t cover a higher monthly payment. Because your monthly payments will be lower, it might also allow you to pay for an expensive car. However, with a longer auto loan you’ll pay higher interest in the long run. A longer-term loan can also increase the chance of getting yourself into a loan or owing more than the vehicle is worth. This scenario can make selling or trading in the vehicle more difficult. Advantages and disadvantages of an auto loan with a short term loan When long-term auto loans could result in an over sum of money in interest charges, a shorter term implies less interest overall. Also, the car will be available even sooner. Additionally, cars are upgraded at a fast rate in the first five years, so it’s likely you won’t be able to pay more than your car is worth over an extended period. If your budget is in a pinch taking out an immediate loan is a riskier choice. This is especially true when you don’t have an enormous . To prevent this from happening, stay away from costly cars that could eat up your budget. The reasons to think about a shorter loan duration There are a few advantages to signing up for an earlier loan. You’ll have to pay off your loan earlier, which means you can take full advantage of the car you’ve purchased and don’t have a large loan to pay off. Consider these top factors when deciding the length the loan. Fewer years to pay A longer loan period could mean payments over five to seven years. A shorter, two-to four-year period will place you in complete possession of your vehicle much earlier, which means you’ll get the cash back into your budget each month and utilize it to pay off high-interest debts or to save. It’s less likely that you’ll be upside down on your loan If you need to sell or upgrade your car then you’ll have more flexibility to make the switch. You likely 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 to move on to a different ride. Better resale value Similar to the lower risk of getting over-paying on your loan, paying off your car sooner means it will be worth more when you’re done the payment. That means if your situation alters and you’re forced to make a change -or simply want something fresh — you’ll be able to receive more than if you were to wait for five to seven years. The bottom line It’s important to be mindful of the amount of car you can actually afford. In addition to the overall amount of the loan, consider how much you can pay into your car every month, including fuel and insurance. A shorter loan might not always be an option for the car of your dreams. If a comparable car is less expensive and can keep you from taking out an extended-term loan, it may be worth the compromise. Whether you opt for either a shorter or longer-term ensure that you obtain the best price possible. Learn more

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Written by

This article was written by using automated technology. It was then thoroughly checked for accuracy and editing by an editor from our editorial team.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances by providing concise, well-researched and well-researched content that breaks down complicated subjects into bite-sized pieces.

Auto loans editor

Review by Mark Kantrowtziz. Reviewed by Nationally known student financial aid expert

Mark Kantrowitz is an expert on financial aid for students, the FAFSA as well as 529 plans, scholarships as well as tax benefits for education and student loans.

Nationally acknowledged expert in student financial aid

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