How Long Should Your Car Loan Term Be?


When you’re applying for financing on a car loan, determining the length of the loan term is an important decision. With a longer loan term, your monthly payments will be less, but you’ll end up paying more interest throughout the loan term. On the other hand, a shorter loan term means higher monthly payments but less paid in interest. The key for you is to find a term that works for you, ideally right in the middle. Having an affordable monthly payment without paying a ton in interest is the sweet spot. In this article, we’re going to go over everything there is to consider about choosing the length of your car loan term. 

Determining the Loan Term Length for You

When you’re deciding on your car loan terms, you need to think about the length of the term compared to the price of the vehicle and what you can afford to be paying monthly. While a longer term will make your monthly payments smaller, it may not be the best option if you can afford to make higher monthly payments. If you’re in this position, why put yourself in a situation where you're going to pay more interest when you can afford to make the extra little bit in monthly payments?

Use These 4 Steps to Determine Your Ideal Loan Length

  1. Determine your budget. The first thing you need to do when deciding on your loan term length is to figure out how much you can afford to pay monthly. Consider the car may require maintenance and repairs that can cost you more so don’t put yourself in a spot where a visit to the garage is going to leave you financially vulnerable. It’s also important to consider whether or not your financial situation is going to change during the course of your loan term. 
  1. Get pre-qualified. Going into the dealership knowing what you’ve been approved for is an empowering feeling. Fill out this car loan application form and see what you’re approved for in minutes. 
  1. Use a car loan calculator. Once you see what you’ve been approved for, plug the interest rate you were offered into a car loan calculator and mess around with different payment plans. This will not only show you your monthly payments at different loan terms but also the exact amount of interest you’ll pay over the course of the loan term. 
  1. Make your decision. Now that you’ve played around with different payment options, it’s time to make a decision as to what loan terms you want. 

Pros and Cons of a Long-Term Loan


  • Great choice if you need a lower monthly payment
  • Allows you to purchase a more expensive vehicle
  • Can make your financial life easier to manage with smaller payments


  • You’ll end up paying more in interest
  • More likely to end up in what’s known as an “upside-down” car loan, meaning you owe more than the vehicle is worth

Pros and Cons of a Short-Term Loan


  • You’ll pay less interest on the loan
  • You’ll own the car outright in less time, at that point you can continue to drive it without having to make payments or look to sell or do a trade-in
  • You're less likely to end up in an “upside-down” loan
  • Better resale value


  • You’ll have higher monthly payments
  • Likely means you’ll have to opt for a less expensive car

The Bottom Line

The most important thing about choosing a car loan term length is ensuring whatever payment plan you decide is something that you’ll be able to afford. Don’t put yourself in a bad financial position so you can get the highest trim level. Be sure to include the costs of fuel and maintenance so if anything goes wrong, you have money to keep you covered. 

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