Here at Auto Credit Express, we are in the business of helping our customers reestablish their credit by financing their vehicles through high risk lenders. As the borrower, one of the things you can do to make it less expensive is to adjust the term.

Shorten the term

Although a shorter term will raise the monthly payment, it will lower the amount of interest paid on the auto loan. As an example, if you finance a car with a selling price of $15,000 plus tax (7%) and fees and a down payment of $2,000 with fees of $120 (non taxable), the amount of the loan is $14,170. You can duplicate this process by going to our loan calculator.

If you finance this car for 60 months, your payment is $337 per month. The amount of interest that you will pay over the life of the loan is $6034. If you were to reduce the loan period to 48 months, the monthly payment would increase to $394, but the amount of interest would drop to $4742 – a decrease of almost $1300 when compared to the five year auto loan. Again, you can use our loan calculator to verify these figures.

Additional benefits – reducing the chance of negative equity

There are additional benefits to shortening the term. Everybody knows that a car loses its value over time. In fact, if you owe more on your car that it appraises for when you want to trade it in, you have what is known as negative equity. By shortening the loan term and paying more every month, you will reduce the negative equity problem in the early part of the auto loan. When you are ready to trade in you car in order to get a new car at a lower interest rate, you may actually have trade equity in your car.

In other words, by financing for a shorter period of time, you have turned a negative (no equity or negative equity in your car) into a positive (no negative equity and possibly trade equity in your car).

The Bottom Line

As a bad credit auto loan customer, you need to look at this type of loan as a stepping stone to better credit. Finance an affordable, dependable vehicle for the shortest loan period that you can afford. Make your payments on time and use this as a step in reestablishing your credit. Our web site, Auto Credit Express, has additional information as well as other calculators that will help you determine how much car you can afford. If you have any other questions, feel free to contact us by email or our toll free number listed at the bottom of our web page. We hope to see you “on the road” to credit health!