Buying a new car can be incredibly exciting and open up all kinds of opportunities. Whether you are looking to upgrade your current vehicle or you are buying a car for the first time, you want to be sure that you get the best possible deal and save yourself as much money as you can. That is why it is so important to find a loan that will work for you financially and is sustainable for you and your bank account. With the right loan terms, you can get the vehicle you need without struggling to make the payments.

When buying a new vehicle, you have a lot of different options when it comes to how you can pay for it and what loan terms are available to you. Loan terms include the length of time you have to pay the loan off, the interest rate, and the monthly payments you will have to make.

By adjusting these terms, you can change their impact on your finances and ensure that you don’t get overwhelmed by the payments for your new vehicle. Knowing how to choose the right loan term as a car buyer will help you make an informed decision that you can be comfortable with for the long haul.

Understanding Car Loan Terms

When you finance a new or used vehicle, you have your choice of lenders and can usually choose things like the length of the loan. For the most part, the faster you pay off the loan as the borrower, the less money you will spend on interest. This is why it is so important to find a loan with a low interest rate. Banks and lenders make money on interest, and the less of that total interest you have for repayment, the better.

Since auto loan rates are determined by things like the market at a particular time and your credit history, there will be fairly small variations in the rate from lender to lender. There are, however, some instances when you can get a lower interest rate by switching your lender.

If the dealership offers car financing, this will usually be the highest interest rate, but they will also generally be more lenient when it comes to things like your credit history. Credit unions and other financial institutions often have lower rates and will be a better option if you have a high enough credit score.

Interest rates are an important part of the lending process, but the length of the loan is even more essential. You can usually choose the length of your loan and pick between short-term or long-term financing options. For the most part, the shorter your loan term is, the more you will pay per month since you have less time to pay the full loan amount. The total amount you spend, though, will be less since you will pay less interest. Striking this balance is a crucial part of the car-buying process.

Short-Term vs. Long-Term Car Loans

Choosing between a short-term or long-term loan is a big decision. Most loans are offered in lengths of 24, 36, 48, 60, 72, and 84 months. The length that will be best for you will depend heavily on your specific financial situation and what you can afford every month. The main benefit of a short-term loan is the lower overall cost of the vehicle. The sooner you pay off the loan, the less you will spend on interest. If you can handle a larger payment every month, this is going to be the cheapest overall option.

Changing the length of a loan can have a drastic impact on the monthly payments you have to make. If you don’t have the financial ability to pay many hundreds of dollars every month, a longer loan term could be the right option for you. While you will end up paying more for the car in the long run, the payments might be more sustainable. Knowing what your financial situation is like and what you can afford will be a big help when trying to figure out if you need to find a lower monthly payment and which option is right for you.

Key Factors to Consider When Choosing a Loan Term

Many factors will determine what kind of loan term will be best for you and your bank account. The main one is your actual budget and what you have available to you upfront as well as monthly. It is important that your down payment and monthly payments are sustainable for you and that you won’t potentially miss any payments, as this can result in fines and even repossession of the vehicle. Knowing your monthly budget is a great way to choose a loan term that will work for you and be comfortable in the long run.

It is also essential that you consider the depreciation of the vehicle. The longer the life of the loan, the less the car will be worth by the time you completely pay it off. If your term is too long, you could end up “upside down” on the loan. This means that you owe more than the car is worth, and the interest only compounds this issue as time goes on. Knowing the value of the car, your budget, and what you will end up paying in total costs at the end of the loan will help you make the right choices.

How the Length of Your Loan Impacts Vehicle Ownership

Loan terms can have a big effect on what you end up paying throughout the course of your ownership of a vehicle. You do not want to be paying for repairs on a car that you are still paying the loan on. This can be a massive financial burden that, when coupled with depreciation, can drastically reduce the positive equity you have in the vehicle.

If the car is new, it will come with a factory warranty that is there to help you pay for repairs, but if the loan term is too long, you might have to deal with large repair bills on top of your car payment. This is why it is so important to have a loan term you can live with and to have a plan in place for repairs once the manufacturer’s warranty is over.

How Endurance Plans Can Offer Financial Security

If your financial situation dictates that you must take a longer loan term, you need to do everything you can to protect yourself from large, expensive repairs. Once your factory warranty is up, an extended warranty (more accurately called a vehicle service contract or auto protection plan) is a great way to keep your overall costs down. Should you run into an issue with your vehicle, having a protection plan in place will keep you from going upside down on your loan and help you maintain your positive equity in the car as you pay off the loan.

Endurance has options available for vehicles of all kinds, ranging from older high-mileage cars to top-tier luxury and exotic vehicles. Endurance will even cover vehicles that other providers won’t, such as Canadian Gray Market cars, vehicles with a rebuilt or salvage title, and cars used for commercial purposes like rideshare or delivery. With an Endurance vehicle protection plan, you can save money on vehicle repairs and focus on paying off your loan.

Car Loan FAQs

What is the best loan term length for a car?

The best loan term length for a car depends on your particular financial situation. For most people, though, it will always be better to get the shortest loan term possible since you will end up paying less in interest over time. If you can afford higher monthly payments, a 36-month or 48-month loan term is best.

When comparing auto loans, what should you consider before deciding?

To make the right decision regarding your car loan term, you need to think about your monthly budget. Knowing what you can afford without pushing your income level is essential. Future-proofing your loan will ensure that no matter what happens financially, you will be able to make the payment.

What is a good interest rate on a car loan?

Average interest rates change all the time since they are based on the market. A good rule of thumb, though, is to try to get the best rates between 6% and 7% or lower. Depending on your credit score, you may get offers with higher interest rates, but this is a good place to start.

Protect Your New or Used Car With Endurance Warranty

No matter what kind of loan terms you end up getting, protecting your new or used vehicle should be a top priority. Endurance has plans for drivers and cars of all kinds and can help you save money on repairs so you don’t get stuck with a broken-down vehicle that you still owe money on.

In addition to comprehensive and customizable coverage, Endurance also offers a large collection of standard benefits for drivers. These benefits will help keep you safe behind the wheel and make getting repairs easy no matter where you are. They include things like 24/7 roadside assistance, towing, rental car coverage, and trip interruption protection for a great experience on the road, even if your car breaks down. You can also get a year’s access to Endurance’s Elite Benefits, which includes extra perks like tire repairs, tire replacements, key fob replacement, up to $1,000 in total loss coverage, and more.

If you want to protect your new car in the long run, contact our award-winning customer service team at (800) 253-8203 to request a FREE quote. You can also visit the online store to get an instant price preview.

Be sure to check out the Endurance Warranty blog for more helpful resources, such as DIY tips, provider comparisons, mechanical breakdown insurance guides for California residents, and more.