As you set out to purchase a new or used car, you probably will need to get a car loan to make this happen. Car loans are not overly difficult to acquire, but there are a lot of differences with the loans you can choose from. As you begin looking, you may want to consider getting the shortest loan you can afford to pay instead of a longer loan, and here are several reasons for this.
You will pay it off faster
The most obvious reason for getting a shorter loan is so that you can pay it off faster. If you compare the difference from a three-year loan to a five-year loan, you will get a difference of two years. Would you rather have your car paid off in three years or five? While you will have to pay higher payments for a three-year loan, you will likely pay a lot less in interest if you only borrow money for three years instead of five.
You may qualify for a lower interest rate on the loan
Not only can you save money on interest charges by choosing a shorter loan, and therefore repaying it faster, but you might also be able to qualify for a lower interest rate if you choose a shorter loan. The interest rates on three-year loans are often lower than the rates on five-year loans. When you have a lower rate of interest, you end up paying less in all for a car, and this is another good reason to choose a shorter loan term if you can afford to.
You will have more equity in the car
The other important thing to consider is the equity in your car. If you have ever had a five-year loan on a car and decided to trade the car in after a few years, you probably found out that your car is not worth as much as you owe. In other words, you have negative equity in the car.
When you have a shorter loan, you will pay off the principal balance of your loan faster, and this often means that you will have positive equity in the car throughout your loan. If you ever decide to trade the car in while you have the loan, you probably will not have to roll any of the balance over to your new car loan.
If you want to buy a car and need a loan, compare the options you have before choosing the loan that is right for you. If you have questions or would like to apply for a car loan, contact a car loan lender today.
When was the last time you realized you were in the red financially? Although most people don't think about their finances on a day to day basis, it can be easy to find yourself living paycheck to paycheck if you aren't careful. I began thinking carefully about the financial implications of some life decisions I was making, and I knew I had to make a difference. I talked with a loan officer about getting things together, and he was instrumental in helping me to work things out. Read more about my financial successes and failures on this little website. You might be able to avoid some of my previous mistakes.