How To Choose The Length For Your Auto Loan

20 March 2020
 Categories: Finance & Money, Blog

The average length of an auto loan is 79.3 months, which is significantly longer than car loans were a few years ago. If you are planning on buying a car with a loan, do you want it to take over 6.5 years for you to repay it? If you are not sure how many months to spread the payments over, here are several things you should consider.

Shorter Durations Equal Higher Payments

Edmonds reports that the most common length for an auto loan today is 72 months, which is six years. Some people choose shorter spans, while other people choose longer ones. One thing to know about the duration is that it will affect your payment amount. Selecting a shorter length, such as a 36- or 48-month loan, will cause an increase in your payment amount. Longer durations help you lower these payments.

A lot of people like to compare their options when purchasing vehicles. They will ask the lender what the difference will be in payments between different durations. They will then choose the option they can afford.

You can also tell the lender the amount you can comfortably afford each month. For example, maybe you can afford to pay $500 a month. The lender can then look for the right length to achieve payments that are around this amount.

You Can Control the Costs by Selecting a More Affordable Car

If you prefer having a lower car payment and a shorter loan length, you have some control over this by your car selection. Choosing a less-costly car will result in lower payments. Vehicles with higher price tags are equivalent to larger monthly payments.

The Pros and Cons of Longer Durations

A lot of people like to spread out these costs for seven to ten years, and there are pros and cons in this. The primary two benefits of longer loans are that you can keep the payment costs down and afford to buy a nicer car.

The downside to longer durations is that you will pay more interest on the loan. The second downside is that you may end up with negative equity in your car from taking so long to repay the money you borrowed to buy it.

You can choose the length you prefer for your next car loan. If you have questions or need advice about this, talk to a lender that offers auto loans.