For most of us, the only way to ever own a car is to take out a loan. There is no denying that a car loan is often the cheapest way of obtaining your new car. However, you need to do your research to determine which auto loan is going to be the right one for you and you need to be thinking long term. If you can see your finances improving soon, it makes sense to take a loan on with a short term with lower interest and be debt-free sooner. But this is not an option all of us have. If a car loan is going to be lengthy commitment you will have to think very carefully about how repaying it for years will impact you and your family.
In most cases, you will have to choose one from the following options:
48-month Car Loan: While you can find 36-month loans, they are usually available to people with an impeccable credit history. A 48-month loan is a viable option because it often comes with the same interest rate you would pay for a shorter-term loan. Many people prefer 48-month to 36-months because they can make lower monthly payments for the longer loan.
60-month Car Loan: If you opt for this loan term, be prepared to deal with a higher interest rate. While the term seems long, you can still manage to pay off your loan early. Just make sure you take on a loan that doesn’t penalize you with fees for early repayment. Many companies do so you may have to look around. With this type of loan, you should aim for making payments that are more than the minimum due. It will be possible to clear your loan early and free yourself of the high interest rate that usually accompanies such long term loans. That said if you can afford to make greater than the minimum payments regularly, perhaps this isn’t your best option for a car loan.
Longer than 60-month Loan: It is possible to find such loans, but you won’t reap many benefits by going for these deals. Securing such loans is difficult because it tells your lenders that you’re seriously worried about making monthly payments and may even have issues clearing your loan altogether. With these loan options, you’d also be paying much more than the original worth of your car, which is not good at all and if the company does need to take possession after a default it’s unlikely they can sell it on to clear your outstanding debt. Your vehicle will depreciate with time and a term as long as this will make it impossible to stay ahead of that diminishing value of your vehicle.
Owning a car for most of us is a necessity, not a luxury. Using credit to buy one regardless of the length of your loan is a long term commitment and it’s not usual to find your car repossessed suddenly after just one default. Make sure you understand all the conditions. Read the small print before you sign, not just the part that tells you how much you’ll have to pay back each month, but what to do if you can’t meet a payment. The last thing you need is to lose the car after you have budgeted hard to make 35 of 36 payments.