How Long Should My Auto Loan Term Be?

You are getting all set to try to find financing for your dream car and you’re trying to decide how long your auto loan should be. The answer is that it depends on your situation.

A typical loan term used to be about five years, now it’s common for it to be six to eight years. The fact is, the longer your loan term the more you pay in interest on your vehicle. However, you don’t want to have a really short term and not be able to make your payments. You really have to find the situation that is best for you.

There are two major things to consider when working out an auto loan. Those are your monthly payment and the interest rate.

Monthly Payment

This factor is something most people think about. Dealerships will tell you how low your monthly payment can be because they want to help you find a payment that fits into your budget. When looking at monthly payments, it is important to find a monthly payment that is small enough that you will be able to handle it every month, but you don’t want it to be too small because then you will probably have a longer loan term that forces you to pay more in total interest.

Interest Rate

Your interest rate is often quite dependent on your credit score. Those with a lower credit score can expect to have higher interest rates on their auto loans. If you do have a higher interest rate, you may want to try to shorten your loan term to lessen the amount of interest you have to pay.

If you are curious about the ways in which your payments could work out, check out our payment calculator here to give you a better idea of the types of payments you could be making. Also, if you have any specific questions about financing, let us know.