Used vehicles are good since they are quite affordable and ideal for people looking to buy their first car. You get to choose from a wide range of premium brands and affordable subcompact automobiles to meet your demands. However, an important question for most first-time purchasers is: How long can you finance a secondhand car?
We'll take a look at payback terms today to see if you need a long one for your monthly auto payments.
Typical Loan Term Stats
For years, a growing number of lenders have extended the payback time for used automobile credit. A lender would have offered you a maximum payback period of 72 months three years ago. Because of the increased demand for cars across the country, credit lenders have begun to offer more inexpensive car payments by extending repayment periods. Nowadays, getting an 84-month loan on a used car is simple.
Why Try Longer-Term Finance?
A variety of variables have contributed to loan periods ranging from 73 to 84 months being commonplace. Longer periods are recognized by both consumers and banks as resulting in lower monthly payments, allowing people to buy automobiles and spend more money on them.
Longer loan durations also benefit banks since they generate higher interest revenue. Because of the fierce competition among banks for consumer business, several extend the length of auto loan terms offered to buyers.
Basic Pros and Cons of a longer loan term
Cheaper monthly cost
When financing a used vehicle, the main advantage of choosing a longer-term is that it can reduce the monthly payment. If you want to buy a car without breaking the bank, this could be critical information for you.
Increased purchasing power
Another benefit of a longer loan term is that you may purchase a more expensive vehicle. Even if you have higher debt, your monthly payments may still be manageable.
You'll have to pay more in interest
One disadvantage of choosing a longer loan term is that you will pay more interest throughout the loan, raising your total loan cost.
Depreciation may catch up to you
There's also the possibility of going underwater if the vehicle's value drops rapidly. You may owe more on the automobile than it's worth.
The loan may last longer than the car
Another possibility is that the loan will be paid off before the vehicle's usable life expires.
If your automobile breaks down and is irreparable, or if the cost of repairs exceeds the car's value, you may want to consider purchasing a new vehicle while paying off your old one.
Car loans: short-term vs long-term
When determining how many months you should finance your automobile, there are a few items to consider. Increasing the duration of a car loan is a good approach to acquire a low monthly payment. While a low monthly payment is enticing, a lengthier automobile loan time usually means greater interest costs.
According to Experian, consider someone who takes out a loan for $29,039 – the average price of a new SUV, and repays it over 60 months at a 4% interest rate. Their monthly payment is $503.34, and by the end of the contract, they will have paid $1208 in interest. The auto payment drops to $396.93 if the loan is extended to 84 months, but the total interest amount rises to $4,302.99, an extra $1,254.15.
There's also the possibility of negative equity, which occurs when you owe more on your vehicle than it's worth. For example, if you have a long loan, you may still be making payments on an older, high-mileage vehicle that has lost a lot of value. Given that the typical period of new vehicle ownership is over seven years, you may find yourself changing automobiles without benefiting from debt-free driving, or you may be forced to trade while in debt.
On the other hand, long-term car loans may be the greatest option for certain customers looking to get behind the wheel of a much-needed vehicle. When it comes to your own financial needs, utilize any auto loan calculator to figure out how long a loan will last and how much money you'll need to buy a car. To see how the suggested funding varies, alter the loan duration, interest rate, and monthly payment.
When it comes to financing any kind of used car, there is no right or wrong length. The suitable loan period for you could be as little as 24 months or as long as 84 months, depending on your present financial status and future intentions for the vehicle.
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