What should the length of my car loan be?
Buying a car is a big decision in your life that often comes with financing. Not all options are created equal, so we have created a guide to help you make the best decision based on your financial situation.
How high is my interest rate?
One of the biggest factors that should play into your financing decision is the interest rate. According to Edmunds, the longer you finance your car, the more interest you'll have to pay. So, if you don't qualify for a low rate, it may be a good idea to opt for a shorter term. One of the biggest benefits of a short-term loan is that there is less time for interest to accrue. However, this option often comes with higher monthly payments, so it is important to determine if you can fit it into your budget.
How long will I keep my car?
Another factor that needs to be considered is how long you plan on driving your car. According to Cars.com, if you are a person who replaces their car often, you should opt for a shorter term loan, as you don't want to be selling with money still owed to a lender. Resale values decline quickly, which means you could end up owing more than the car is actually worth if you obtain a five-year loan, and sell the car after three years.
How old is the car?
The age of the car you are purchasing should factor into your financing decision as well. This may not be an issue when buying new, but if you purchase a used car that has a chance of breaking down or dying in a couple of years, you may want to consider the length of your loan. You don't want to be stuck owing money to lenders while your car sits in a junkyard.
No matter how long your loan, or how high your interest rate, you will need to secure car insurance to legally drive your new vehicle on the road. To help cancel out some of the cost of your financing, comparing cheap car insurance quotes on the internet can help you find an affordable policy. By saving a few dollars on your insurance, the impact of having to take out a loan to purchase your car could be lessened.