Auto Loans widely varies in lengths of time and payment amounts. The term “AUTO LOAN” can affect the interest rate, amount of total interest paid and the overall price of purchasing a new or used vehicle. Thus, it is important to understand the types of terms available with most new or used car loans and how they can affect the amount you can actually pay.
The following are listed types and descriptions of auto loan terms normally available when purchasing a new or used car:
SHORT TERM AUTO LOANS are loans made for the purchase of a new or used car and have payment terms of 12 months (1 year) up to 36 months (3 years). These types of loans are designed to help a consumer quickly pay off a loan obligation for a new or used car purchase. However, the payment amounts of shorter term loans can be somewhat high or burdensome for some. This generally offer lower interest rates than do longer term loans, thus, people with bad credit may be required to use shorter term loans in order to approved by certain auto loan lenders. Interest rates can be somewhat higher than normal as people with bad credit can sometimes be expected to”buy back their auto credit”. Short term loans enable a person with bad or poor credit, to re-establish his or her credit history.
Advantages of Short term Auto Loans are:
Quick Pay off of a car loan obligation
Increased trade in value after the completion of the loan
Much lower interest payments and lower overall cost of ownership
Disadvantages of Short Term Auto Loans are:
High or expensive individual monthly payments
May require additional sacrifices to afford higher monthly payments
May be difficult to sustain if the customer loses a job or income
LONG TERM AUTO LOANS are usually car loans that have payment terms longer than 60 months (5 years). Longer duration auto loans are designed to allow customers to make smaller, more affordable monthly payments on a car or truck. While the individual monthly payment amounts are much lower with long term auto loans, the amount of interest paid over the life of the loan increases dramatically. The increased accrued and paid interest can substantially increase the overall cost of ownership with new or used car or truck.
Advantages of Long-Term Auto Loans:
Smaller and more affordable monthly payments
Frees up money for other obligations and expenses
May be able to be sustained if a customer loses a job or income
Disadvantages of Long-Term Auto Loans:
Car or truck may be little, or significantly reduced, trade-in value at the end of the loan term
Substantial increase in amount of interest paid and accrued
Increased overall cost of ownership.