Financial Advice

Buy & Own a Car


Your Auto Loan Term Is More Important than You Think

A man and his dog sit in their new car. 

If you’re new to car buying, it can be hard to know what to focus on when it comes to getting a fair deal. Should you focus on getting a smaller monthly payment, the length or term of your loan, the interest rate, or all of the above? Believe it or not, it’s wiser to focus on the interest rate and the term of your loan rather than your monthly payment. And understanding why can give you an advantage when it comes to negotiating a deal. Consider these four reasons why the term of an auto loan is more important than you think.

You Can Focus on the Actual Price
If you tell a dealer that you want to stay within a monthly price, they’ll likely give you multiple options. More often than not, they’ll try to sell you the most expensive car at the top of your monthly budget range, or even a tad over. But be cautious about these kinds of offers. If you only focus on your monthly payment amount, you may not have an accurate understanding of the big picture of your potential purchase. It’s easy to lose focus when you’re eager to get behind the wheel of your new car. But try to focus on the actual total price of the car as opposed to just the monthly payment. If you target a specific price point vs monthly payments, you could possibly drive away with a better deal. Getting the best car loan for your situation should be your goal.

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You’ll Pay Off the Loan More Quickly 
To keep within your desired monthly payment, dealerships will often offer you a longer payment term. For example, instead of paying off your car in 36 months, they might stretch it to 72 months. While this might seem like a better deal because of the lower monthly payments, you will end up paying more in the long run, and you’ll have a car payment for six years instead of three. Not only that, but if you get into a wreck or need to sell your car for some reason, you risk owing more on the car than what it’s worth when you stretch out your loan payments for that many years.

You Can Lower Your Interest Rates
With a longer term, you not only pay more in the long run, you often end up with a higher interest rate as well. Choosing a shorter term can help you save significantly on interest rates and payments. You’ll also get better interest rates if you have a solid credit score and can bring a substantial down payment. Essentially, the more responsible you are as a borrower, the more you benefit.

You Have More (and Better) Options
When you aren’t completely focused on monthly payments, you open the door to other choices when it comes to cars, terms, and prices. As long as you aren’t stretching yourself too thin financially, you should be able to find a car that meets your needs and can keep you safe on the road for years to come.

While monthly payments are important to keep in mind, they shouldn’t be the sole reason for your final decision to purchase a car. It’s wiser to consider the big picture, which admittedly might not align with your dream car. Still, sometimes it’s better to delay gratification in pursuit of financial stability. With a little patience and self-control, there might be a dream car in your future after all.