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Short Term vs. Long-Term Car Loans: Which One is the Best Option?

Larissa F. Gasperi
Dec 13, 2023 11:18:30 AM

Long-term car loans are becoming a popular choice for people buying cars. These loans last for more than five years, which makes them different from the usual shorter car loans. The main reason people like them is because they make periodical car payments smaller and more manageable. This is really helpful for people who need to stick to a certain budget but still want to own a good car. In this article, we're going to talk about what these long-term car loans are, why they're a good idea for some people, and some things to think about before you decide to get one.  


Understanding Long-Term Car Loans 

A long-term car loan is a way to pay for a car over a longer period than the usual loans, often extending beyond five years. This type of loan is different from short-term loans, which are paid off more quickly. With a long-term loan, your periodical payments are smaller because you're spreading the cost of the car over more periods. This can make buying a car seem more affordable, especially if you're working with a tight budget. 

But it's important to remember that even though the periodical payments are smaller, you might end up paying more in total by the end of the loan. This happens because you're paying interest, which is a fee for borrowing money, for a longer duration. So, when thinking about a long-term car loan, it's essential to consider both the amount you pay periodically and the total amount you'll pay overtime. 


Benefits of Choosing a Long-Term Car Loan 


Choosing a long-term car loan can be really helpful for a few reasons: 

  • Smaller Payments: Because you're paying back the loan over more periods, each payment is smaller. This means you don't have to find as much money each time you need to make a payment. 
  • Budget Flexibility: With smaller payments, you might have extra money left for other important things or fun activities. It can make handling your money a bit easier. 
  • Better Car Options: Sometimes, the cars you really like might be a bit expensive. A long-term loan can make these nicer cars more affordable because of the smaller payments. 
  • Good for Credit Score: If you pay each amount on time, it can help build a good credit score, which is important for your financial future. 
  • Adaptable for Future Changes: If your financial situation changes, like if you get a better job, you can still handle the loan, and sometimes even pay it off earlier if you want. 

So, long-term car loans can be a great choice, especially if you need to manage your money carefully but still want to own a good car. 


Considerations Before Opting for a Long-Term Car Loan 

Even though long-term car loans can be helpful, there are a few things you should think about before deciding to get one: 

  • More Interest to Pay: Because you're taking longer to pay back the loan, you'll end up paying more interest. It's like a longer fee for borrowing the money. 
  • Car Value Goes Down: Cars usually lose their value over time. With a long-term loan, there's a chance that you might owe more money on the loan than what the car is worth, especially after a few years. 
  • Long Commitment: A long-term loan means you'll be paying it off for many years. This could affect your ability to spend on other big things in the future. 
  • Insurance Costs: Sometimes, when you have a long-term loan, you might need to pay more for car insurance. 
  • Early Payment Fees: If you get lucky and can pay off the loan early, some loans might have extra fees for doing this. 

It's important to think about these things to make sure a long-term car loan is the right choice for you, especially when it comes to your money and future plans.  


Comparing Short-Term vs. Long-Term Car Loans 


When deciding on a car loan, understanding the differences between short-term and long-term options is crucial. Here's a breakdown to help you compare and choose the one that suits your needs best: 

  • Loan Duration and Monthly Payments: Short-term loans typically last up to 4 years, with higher monthly payments compared to long-term loans, which can extend up to 7 years and offer lower periodical payments. 
  • Total Interest Paid: While short-term loans have higher monthly payments, you'll generally pay less in total interest due to the shorter repayment period. In contrast, long-term loans, despite their lower monthly payments, accrue more interest over time. 
  • Vehicle Depreciation: With a short-term loan, you're likely to pay off the loan faster than the car depreciates. This means you could have equity in the car sooner. In a long-term loan, the slower repayment can lead to a situation where you owe more than the car's value for a longer period. 
  • Financial Flexibility: Short-term loans free up your finances quicker, allowing for more flexibility in the future. Long-term loans, while lower in periodical outgoings, tie you to a longer commitment. 
  • Suitability Based on Financial Goals: If your priority is to minimise total loan cost and you can handle higher periodical payments, a short-term loan might be more suitable. Conversely, if budget flexibility is your goal and you're comfortable with paying more over time, a long-term loan could be a better fit. 

In summary, deciding between a short-term and a long-term car loan really depends on what you need and what you're planning for your money. Short-term loans mean you pay less overall, but you need to pay more regularly. On the other hand, long-term loans help you right now because the regular payments are smaller, but in the end, they might cost you more because of the extra interest. 

It's all about what works best for you. If you have enough to handle bigger payments now and want to save money in the long run, a short-term loan could be better. But if you need to keep your regular payments low and are okay with paying more over time, then a long-term loan might be the way to go. 


How to Decide if a Long-Term Car Loan is Right for You 

To figure out if a long-term car loan works for you, here are some easy steps: 

  • Look at Your Budget: Check how much money you get and what you spend regularly. This helps you see if you are better off with the smaller payments that come with a long-term loan. 
  • Think About Your Future Money Plans: Are you planning big things in the future like buying a house or having a family? A long-term loan might make things easier during these big changes. 
  • Total Cost: Add up all the money you'll pay during the whole loan, including the extra interest. This lets you know if the smaller payments now are worth it compared to the total amount you'll pay. 
  • How Long You'll Keep the Car: If you like getting new cars often, remember that with a long-term loan, you might still be paying for your old car when you're ready for a new one. 
  • Early Payoff Fees: Check if you have to pay extra if you can finish paying the loan early. This is worth knowing if you can pay it off sooner than expected. 

Conclusion: Making a Smart Choice 

Choosing the right car loan is a big decision that can affect your money and plans for a long time. Long-term car loans, which have smaller payments and let you pay back the money over a longer time, can be really helpful, especially if you need to stick to a certain budget or want a nicer car. But, it's important to think about the extra interest you'll pay over time and how the car's value might go down. 

The best decision is one that works well with both your current money situation and your future money plans. By thinking about all these things, you can make a good choice about getting a long-term car loan. 

If you're considering a car loan and are ready to explore your options, Ausloans is here to assist. Apply for a loan with us, and our team of experienced brokers will be in touch. We're committed to providing you with top-notch service and a range of loan options to consider. With Ausloans, finding a car loan that aligns with your situation can be a smooth and straightforward process. Start your journey with Ausloans today for a hassle-free car financing experience. 




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