Should you opt for a shorter payment period?
Here is some good news; you don't have to be worried about car financing.
In fact, modern car financing is so flexible and diverse that it is possible to choose between varying lengths of payments. This option actually opens up a variety of benefits for car buyers. In this article, we will address the question of whether you should opt for a shorter repayment period on your car loan or a longer period.
The Short Term Car Loan
You can ultimately save money when you select a short-term car loan. The interest rates will be assessed for a shorter duration of time when you make the decision to opt for 48 months instead of 72. This means that in the long run, you will save money. Further, you will own your car as an asset in a shorter amount of time as well.
Also, you won't have to worry about continuing to pay top dollar on a car that has depreciated in value. Especially in the case of a used car, by the time you own it outright, it may be worth very little. Typically, a car loses 15%-20% of its value per year.
Let's take a look at how depreciation might work with a used car.
Original price of used carFirst year 15%-20% lossSecond year 15%-20% lossThird year 15%-20% loss$15,000$12,000$9,600$7,000
A shorter car payment period may work for you, but it is important to note that there are other options as well. As it turns out, a longer payment period may actually come with a number of potential benefits.
Why Select a Longer Repayment Period?
The first benefit of opting for a longer repayment period on your car loan is that you will be able to potentially afford a car that you could otherwise not drive. Many car buyers are quite disappointed when they can't get into their dream car. The solution is often as simple as opting for a longer car loan repayment.
A second benefit is that you can also lower your monthly payments. Clearly, trying to pay a car off in 48 months will be more difficult than trying to pay a car off in 60 or 72 months. If you find that you are on a tight budget, this difference every month can really add up.
A third potential benefit of opting for a longer repayment period is that you are freed up to pay down other debt or apply money in other directions. This is another one of the reasons that many car buyers decide to opt for longer repayment periods instead of shorter ones.
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