If you’re in the market for a new vehicle but don’t have the cash to make a purchase, exploring the option of a car loan should be your first step. This can be an overwhelming task as there are many different loan options, but with professional advice from Simply Finance, you can avoid all the related stress and save time and money.
Why the length of your car loan matters
The term of a car loan is an important consideration as it affects the total amount you will pay for your vehicle. Whether you opt for a short-term (three-year) or long-term (five-year) car loan depends on your financial situation.
Here’s what you need to know about each option:
A three-year car loan is an ideal option if you have the budget that can meet the slight increase in monthly repayments relative to longer loan terms. For example, a car loan of $5,000 (with an interest rate of 7% per annum) will have monthly repayments of $154. At the end of the three-year period, the total cost would be around $5,557.
What makes this a good option is the shorter debt term,which minimises the amount of interest on the loan. Short-term loans allow you to focus on bigger financial goals without being financially obligated for too long. To benefit from this type of car loan, you will need to be financially disciplined as the monthly repayments are higher.
Four to five-year car loans have lower monthly repayments that make them more affordable if you have a smaller budget available, while also allowing you to buy the model you desire. For a five-year term, a car loan of $5,000 (interest rate of 7% per annum) will have monthly repayments of $99. At the end of the five year period, the total cost would be $5,940.
The disadvantages to consider here are that you will pay much more in interest and be financially obligated for longer. However, if the lower monthly repayments are worth the extra interest you pay in the end and you have no major financial goals for the future, this is a great option.
When deciding on the term of your car loan, do not forget to include all the other vehicle-related costs that apply such as maintenance and monthly insurance premiums. Buy your next car the smart way with Simply Finance. Find out how – give us a call now.