Consumer Car Buying Advice Blog

One tip to paying the least and making the most of a bad credit car loan is to keep the loan term as short as possible.

It’s common sense, not rocket science

At Auto Credit Express, we are in the business of helping our customers raise their credit scores and reestablish their car credit by financing a car with a bad credit car loan. As a borrower, one of the most important things you can do to make the process less expensive is to shorten the term of the loan.

Adjusting the term

Although a short loan term will raise the monthly payment, it will also lower the total amount of interest paid on the 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.

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 (you can duplicate this process by going to our auto loan calculator). 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 loan (again, you can use our auto loan calculator to verify these figures).

Staying away from the ditch

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 (also known as being “in the ditch” or “upside down” by many in the car business). By shortening the loan term and paying more every month, you reduce the chances of negative equity earlier in the loan term. When you are ready to trade in you car in order to get a new car at a lower interest rate – the whole purpose of a bad credit car loan – you may actually have positive equity in your car at that time.

To put it simply: 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

Bad credit car loan customers need to look at the loan process as a stepping stone to better credit. As such, each step needs to make financial sense. Your first step, then, is to finance an affordable, dependable vehicle for the shortest loan period that you can budget for. Make your payments on time and your first step will be a success.

For more information on the bad credit car loan process, consult our web site at www.autocreditexpress.com. If you have any other questions, feel free to contact us by email or our toll free number listed at the bottom of every web page. By following these steps, you’ll be “on the road” to better credit!

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