Buying a new car is exciting, even if you are not purchasing a brand-new vehicle. If this is something you want to purchase soon, have you considered how you will pay for it? If you choose to pay for it through an auto loan, you are not alone. According to one study, 107 million Americans have car loans right now. Using a car loan is a great way to purchase a car, but you will have options when it comes to the length of the loan you get. If you are wondering how to choose the right length, here are a few tips to help you decide.
The Amount You Can Afford Each Month
Whenever you get any loan, one of the most critical steps is making sure you can afford the payments. When you get a car loan, you will have equal payments each month for a specific length of time, so you must determine how much you can afford. Suppose you can afford $400 a month, you could ask the lender to calculate the loan based on this factor. You might find that your payments would be around this amount with a 60-month loan. If you evaluate a 48-month loan, you might see an increase of $50 a month or so in your loan payments. The primary objective is to select a term that provides a payment amount you can comfortably afford.
The Perks of Choosing a Shorter Loan
Next, you may want to ask if there are any perks of choosing a shorter loan. Many lenders lower their interest rates for shorter loans. For example, the rate on a five-year loan might be 5%, while the rate on a four-year loan might be 4.5%. If you can choose a shorter loan, you will pay lower interest charges on the loan.
The Speed in Which You Build Equity
You should also consider how fast you build equity in a car with different loan terms. You will build equity more quickly with a shorter loan. If this is important to you, choose a shorter loan if you can afford it.
Your Thoughts on Debt
Finally, you may want to factor in the way you view debt. If having debt does not bother you, go for a longer loan. If you do not like having debt, choosing a shorter loan will provide a way for you to pay it off sooner. You can talk to an auto loan lender to learn more about the options you have.Share