When it comes to car loans, one of the most important factors affecting the decision-making process is the length of the loan. Some like to have their loan paid relatively fast, while others want to extend the loan terms. Regardless of your choice, both options actually offer a number of perks. It’s all a matter of being familiar with how each one works so you can determine the one that suits you best. Take a look at the benefits of long term and short term auto loans.
Benefits of Short Term Auto Loans
Pay off your balance fast
One of the best things about short term car loans is that you can pay it off fast. A typical auto loan length is 5 years long. Choosing a short term car loan means that you can get out of debt quicker. You won’t have to deal with paying the loan for long and you can move on to your next financial goals.
Lower interest rates
In a short term car loan, you won’t have to pay as much interest as you would in a long term loan. Generally, the shorter the loan term, the better interest rates you will get from the lender. Short term loan borrowers are usually rewarded by lenders with a reduced interest rate. This results in an overall lower cost of the vehicle compared to when you’re signing up for a long term loan.
Higher vehicle resale value
For whatever reason, some people decide to resell their car after having the loan paid off. If you opt to go the same route, your vehicle is more likely going to have higher resale value if you choose to go with the short term loan. By the time your auto loan is paid up, the vehicle would still be considered relatively new. If it is given proper care and is well-maintained, there’s a good chance you can have it sold at a good price.
You won’t end up paying more than the car is worth
What people fail to realize are the consequences that go along with a long term loan. In a long term loan, borrowers usually end up paying more than their vehicle is worth because of the high-interest rates. Sure, the monthly dues are reasonable but think about the car’s overall price with the fees and interest rates considered.
Benefits of Long term auto loans
Your money doesn’t have to be tied up
Choosing a short term auto loan means that you are committing to a high monthly payment. Making this decision requires careful thought and planning. If you are someone who is living from paycheck to paycheck, a long term loan might be a more plausible option. This way, your auto loan won’t eat up a huge chunk of your monthly budget. This means that you won’t be tight on funds and still be able to save a part of your income for emergency expenses.
You may choose a more expensive car
Long term auto loans usually require lower monthly payments. If the car payments are affordable, you may even choose a more expensive vehicle.
Lower down payment required
If you are planning to buy a car soon but can’t afford a bigger down payment, a long term auto loan is the way to go. Long term car loans usually require more affordable down payments than short term loans. You can also establish lower monthly payments with this option.
While both long term and short terms auto loans offer advantages, short term loans are still generally better for borrowers. In terms of the overall cost of the vehicle, short term loans are way cheaper and a smarter choice because of the lower interest rates. If you think the monthly payments associated with the 5-year loan term isn’t affordable, you might want to consider shopping for vehicles under a lower price range. Remember to call Calcite Credit Union when you choose the kind of auto loan for you.