Comparing Short Term and Long Term Car Financing


When you choose the financing route when buying a car, there are a few decisions you need to make in order to figure out your payments. One of the biggest decisions is how long of a financing term you want to sign for. While there are pros and cons to both long and short-term car loans, the route you choose is entirely dependent on what makes the most sense for you financially. In this article, we’ll explain the differences between term lengths and things you need to consider before making a decision. 

Pros and Cons of a Short Term Loan


  • Ownership of vehicle sooner. The shorter your loan term, the less time it will take for you to own the vehicle.
  • Higher re-sale value. When you're done making payments on your car loan, if you decide to sell the vehicle you'll be able to get more due to the reduced depreciation of the vehicle.
  • Less interest. If you opt for a shorter-term car loan, you’ll pay less in interest. 
  • Less risk. Committing to a short-term loan reduces the chance of being caught in what’s known as an “upside down” loan. An upside-down loan means you owe more money than the vehicle is worth.


  • A larger down payment is required. In order to get approved for a short-term car loan, you need to be able to afford to make a larger down payment
  • Higher monthly payments. The shorter the loan, the higher the monthly payments. 

Pros and Cons of a Long Term Loan


  • Lower monthly payments. The longer the loan, the less your monthly payments will be
  • More financial flexibility. The lower monthly payments may give you the ability to afford a more expensive car


  • Longer duration until ownership. If you choose to sign a long-term car loan, it will take longer to fully own the vehicle. 
  • Lower resale value. By the time you own the car and have the ability to sell, the resale value will be significantly lower. 
  • Increase interest costs. The longer the loan, the more you’ll have to pay in interest. Not only will you pay more interest because of the duration of the loan, but your interest rate will also increase.
  • Increased risk. Committing to a long-term loan increases the chance of being caught in an upside-down loan.

What Makes the Most Sense?

Short-term loans are differently the most cost-effective type of loans, but it means you may have to be willing to settle for a less expensive car. If you don’t think you can manage the monthly payments on a 60 month (5 year) loan, perhaps you should consider finding a more affordable vehicle. If you still want that car you can’t afford monthly payments on in a 60 month period, extending that loan to make the monthly payments affordable will actually cost you more in the long run due to the interest costs.

Use a Car Loan Calculator

There is no better way to predict what your monthly payments will look like than using a car loan calculator. Simply, fill in basic information about the financing terms and adjust the term length to see how different lengths of terms affect your monthly payments. 

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