Which car loan length should I get?

Finding the car loan that fits you


Often when someone is buying a car for the first time, they don’t know whether they should opt for a long-term loan or a short-term loan. A long-term loan can last from 60-96 months, while a short-term loan will usually range from 24-48 months. Today we will be taking about the benefits of each loan length and how you can decide which loan will be best for you and your financial goals.

Benefits of a Short-Term Loan

There are plenty of benefits that come with choosing a short-term car loan, but here are the four that make it worth it, being able to pay your balance off fast, finance with lower interest rates, have a higher resale value, and you won’t end up paying more than your car is worth. When you are able to pay your balance off fast, that allows you to get rid of your debt faster and move on to your next financial goal. With a long-term loan, you are paying monthly payments for 5 or more years, which can hold you back from budgeting and saving up for other projects and finances you may have. With a short-term loan, the bank will be able to give you a lower interest rate seeing that they are not taking as big of a risk lending you the money for such a long period of time. Therefore, that lower interest rate will keep you from paying more than your car is worth. Often buyers will choose a longer loan term but, in the end, end up paying thousands of dollars more than the car is actually worth because their interest rate is higher due to a longer loan term. Lastly, in the long run, the resale value of your car will be higher because at the time you pay it off, your car will only be two to three years old, marking it as relatively new. Imagine paying off your car in a short amount of time and not having lasting payments which in turn will be more money in your pocket.

Interest Rates

Benefits of a Long-Term Loan

While there are plenty of great benefits for choosing a short-term car loan, one of its biggest downfalls is that your monthly payment is going to be higher. Choosing a long-term loan will grant you the benefit of having a lower monthly payment which can lead to not having money tied up, being able to choose a more expensive car, and enabling you to have a lower down payment amount. The problem that often occurs when people choose a short-term loan is that their money gets tied up in their monthly payments, and if they are living paycheck to paycheck this can put a lot of strain on their budgeting. With the long-term loan you are going to have lower payments, which allows buyers to lower their strain and financial stress on the ability to pay other bills. With a lower payment not eating up the budget for buyers, it will also allow them to invest and save money for emergency expenses. A long-term loan will also allow buyers to afford a more expensive car. Keep in mind that with a short-term loan, $500 a month may only get you a $20,000 car loan, but with a long-term car loan, a $500 monthly payment will be able to get you closer to a $35,000 car loan. Lastly, with a long-term loan you have the ability to get a vehicle putting less money, or no money, down in the beginning. When the bank knows they are going to make more money on the back end, this gives them the security which will allow you to not put down as much money on the front end. New car and some leftover spending money? Sounds like a call for a celebration.

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Finding What is best for you

At the end of the day, there really is no one-size fits all when it comes to deciding the length of your loan term. A few ways you can prepare and come to a decision that best fits your financial goals are to speak with a personal financial advisor, talk to a trusted friend, talk with your sales representative, and even speak with the finance manager at the dealership. If you have a financial advisor, this would be our recommendation for the first person you speak with. Your advisor will already have a budget set up with your income, current expenses, and other financial goals that you may have, so they will be able to align your car payment with those current goals in mind. The next person you may want to seek advice from is a trusted friend who has bought a car and shares similar goals as you. If they have gone through the process of buying a car, whether their experience was good or bad, they will be able to provide advice based on their learning experiences. Lastly, we recommend that you talk with either your sales representative or the financial manager at the dealership. Here at Bill Luke, we pride ourselves on putting our customers first, ensuring their happiness, and making the car buying experience unique to them. Our sales representatives and financial managers have worked on thousands of different deals, so they will be able to help you come out with a deal that best fits you or even just help direct you to successfully getting you into that car of your dreams.

Walk off in a new ride


All in all, there is no correct finance-term length that will work for everybody. You will have to sit down and speak with a professional to decide which length is best for you and will help you meet your other financial goals. We have a great financial team here at Bill Luke that is always willing to help answer any questions you may have, whether it is regarding the length of your loan or the amount of money you should put down on a car. If you have any further questions, please feel free to leave them in the comments below and we will be sure to have someone get back to you as soon as possible.

Bill Luke Tempe 33.3459791, -111.9689947.