Understanding Long- and Short-Term Repayment Periods

There are two types of auto loans that you should concern yourself with in terms of repayment plans: long-term and short-term. They’re both fairly self explanatory; long-term means payments are stretched over a longer period of time, and short-term means they are paid off more quickly.

There are, however, some characteristics of these types of auto loans that you should know about in order to decide which is best for you. So to get a better grasp of what they mean, let’s look more closely at them.

Long Term vs. Short Term


The long-term loan is usually thought of as one that lasts 48 months or longer. You might find financial institutions that will offer repayment plans that last for up to 60 months. And there are some that even stretch out to 72 months. The purpose of financing for these longer periods of time is to allow you to purchase a vehicle in your budget. For instance, let’s say you want to buy a $24,000 car and have a $4,000 down payment, a $10,000 trade in, and want to pay $280 a month. With an average 7% interest rate, you’ll need at least a 48-month term to pay the note you prefer.

But while the long-term plan looks attractive, there are some benefits to the short-term loan. One is that you will likely benefit from being covered by the warranty during the length of the term. Many times, long-term repayment plans outlive the warranty, which means not only do you pay a monthly car note, you also have to start paying for repairs out of pocket. Some people with long-term loans purchase extended warranties to combat this potential problem; however, doing so increases the monthly payment, which just might defeat the purpose.

Also, when looking at these types of loan payment periods, it’s good to take into consideration that the longer you stretch out your loan term, the more you will be paying for your car overall. Those who want to avoid paying an arm and a leg in interest opt for the short-term route.

Save for Your Future

Deciding which auto loans you want to go with can be time-consuming. But by conducting research on interest rates, credit criteria and potential pitfalls in addition to the loan repayment period, you have an opportunity to create a great car-purchasing experience.


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