Understand that the duration of your car loan matters a lot. Getting finance on a car can work out more expensive in the long run, especially if you haven’t paid much attention to the interest rate at the time of buying. A short-term auto loan will last for 36 months and have many benefits as well. For instance:
In most cases, you end up getting a loan at a lower interest rate when the term is short. Lenders know they will get their money back in a short time, so they will be willing to forward money at a reasonable interest rate. Moreover, lenders believe that shorter loans are less likely to go default by the borrower, so the lower risk cuts the cost as well. An extended car loan may sometimes be easier to manage, but it makes you pay much more overall for your car.
You can get rid of your car loan faster. More commonly available car loans are about 5 years long. If you opt for a short-term loan, you will be agreeing on making larger payments for a short time, and as your focus won’t shift elsewhere during this short period, you will be out of debt sooner.
An obvious benefit of a short-term car loan is that you will be able to free up your money a lot faster. And you can decide to save that “freed-up” money that can be used to wipe out any auto loan you take in the future. You can even save it for your kids and have it tucked away safely in an emergency fund. Really, the choices are unlimited!
You don’t end up paying more than the overall worth of the car. With a long-term car loan, you end up paying a lot more in interest, which goes beyond what the car is worth. It is not a good idea, especially if you live paycheck to paycheck.
What’s more, you need to consider that if you end up engaging in a total loss accident, you will have a lot of money to pay over a period of several months for a car you can no longer drive. Some people rely on Gap insurance but that is not always going to prove useful, especially when extras are added into a car loan. Therefore, a short 36-month loan makes a lot of sense. Of course, you may owe a bit more than the value of your vehicle if you opt for a short-term loan with zero money down. But again, the situation won’t last long because you will be getting rid of your debt at a faster rate as compared to the rate at which your car is depreciating.
The fact of the matter is that a short-term loan can help you in so many ways, but you should also bear in mind that you will be making a big commitment when going for a high monthly car payment. In other words, you won’t have enough money available to deal with any emergency expenses. The good thing is that the situation won’t stay that way for long, if keep your end of the bargain and make timely payments.