4 Benefits Of Taking A Shorter-Term Auto Loan
When you pay for your new car purchase with an auto loan, you get to choose the loan duration. The duration can range from 12 months to 96 months, and your lender will provide you with options. Should you choose a longer or shorter term for your loan? You can choose whichever you like, but here are four benefits of taking a shorter auto loan.
1. You Will Pay Off the Loan Faster
A shorter loan means fewer payments. When you have fewer payments, you pay off the loan faster. If you compare a two-year loan to a six-year loan, you will see a huge difference in the timeframe. A two-year loan provides a way to repay the money in only two years. Would you rather pay on your loan for two years or six? You can also choose durations in-between these two timeframes. However, a shorter loan is always a good idea if you do not like being in debt.
2. You Will Pay Less Money in Interest
Secondly, whenever you borrow money, you pay interest on the money for the entire time that you owe the money. When you borrow money for longer periods, you pay more interest. If you want to save money on interest charges, choose a shorter loan. A shorter loan will result in spending less money on interest charges.
3. You Might Get a Lower Interest Rate
Additionally, lenders often base the loan rates on durations. They will generally offer the lowest interest rates on shorter loans, and they will charge the highest rates on longer loans. Lenders base the interest rates on risk. When they issue a two-year loan, they assume less risk than when they issue a six-year loan.
4. You Can Drop Your Full-Coverage Insurance Faster
One other thing to consider is the auto insurance you will need when you get an auto loan. Auto lenders require full-coverage insurance plans for auto loan borrowers. They require this to protect their own interests. Paying full-coverage insurance costs much more than paying for a liability-only policy, so this is something to consider. When you pay off a loan faster through a shorter duration, you can drop the full-coverage requirement much faster.
Now that you know these benefits of a shorter loan, what length do you want for your car purchase? If you have questions about your options, talk to an auto lending service today.