The payment term for auto loans varies widely. While the average is somewhere around 67 months, you can get a loan with considerably shorter or longer terms. Deciding what loan term length is best is often one of the greatest challenges for first-time buyers. However, there are a number of factors to consider that can help you make a good choice.
Goals
Your personal goals should have a significant influence on how long of a loan length you choose. Take someone who is looking to purchase a home in the next three years, for example. A number of mortgage lenders consider your debt load as a factor in the approval process.
If you already have student loans, credit card debt and other high balances, adding a vehicle with a long-term payment structure might not be a favorable choice because it will only add to your debt load and possibly lower your chances of a mortgage approval. In this scenario, provided you can afford the payments, paying off the loan in three years or less would be ideal. Take a few moments to consider financial goals over the span of the loan term.
Credit History
Young, first-time buyers don't always have large purchases or credit cards that reflect their ability to pay their obligations on time. Buyers with limited credit history sometimes get tossed in the same pool as buyers with poor credit. Poor credit buyers can pay an average interest rate of 13% interest. Given this figure, a $15,000 loan with 36 monthly payments would cost about $3,194.73 in interest.
A loan spread out over 72 payments would cost $6,680.03 in interest. If you have a limited history, it might be a better option to pay off your first loan quickly and then consider a longer term loan in the future once you have a more established history and access to lower interest rates.
Help When You Need It
If choosing a loan term seems overwhelming, help might be more accessible than you think. Lenders aren't just in the business of lending money, but they can also help educate their customers and ensure they are agreeing to loan terms that best meet their own needs. Taking some time to discuss the different loan options with the lender can help you put a more personal perspective on the decision to ensure you make the right choice.
For more information, contact Community Resource Bank or a similar location.
Share16 November 2015
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