How Does My Loan Term Affect My Car Payment?

Loan Terms Explained

Loan terms are the amount of time you're given to make payments on your loan. They're typically shown in months. For example, a four-year term would be listed as a 48-month loan. Loans are typically offered in a range of terms from around 24 to 96 months.

Your loan term is determined by a number of things, including your credit, the vehicle you choose, the lender you're working with, and how much you put down. All of these things can impact how long your loan is, which in turn impacts how much your monthly payment is, and the overall cost of your vehicle.

Loan Terms and Interest Charges

To get a rough estimate of how much a car costs per month you can divide the selling price of the vehicle by the number of months in the loan term. However, to find out how much you're actually going to be paying, you need to factor in interest charges. This is the cost of borrowing money, and the lower your credit score is the higher your interest rate is likely to be. The higher your interest rate, the more it costs you to borrow.

Here's the kicker though: the longer you stretch your loan term, the more you end up paying in interest charges since they accrue daily based on your loan balance. Smaller loan payments each month from a long loan term mean more balance for longer, and more interest charges overall.

Finding Your Ideal Loan Term

As you consider your loan term, there are a number of things you need to keep in mind:

• Your monthly budget – If you need to stretch out your loan term just to make a car payment fit into your budget, you may want to consider a less expensive vehicle. Lenders prefer that your combined auto loan and insurance payments don't take up more than 15% to 20% of your gross monthly income.
• The big picture – Sure, you can make a smaller monthly payment when you have an 84-month loan compared to a 48-month loan, but do you really want a car payment for the next seven years? How much will your vehicle be worth compared to what you paid in the end? A better plan is to pay the most you can comfortably afford for the shortest loan term you can.
• How much vehicle can you afford? – If you're not sure of the answer to this question, head over to our car loan estimator and payment calculator, to see an estimate of how much auto loan you might be eligible for, and what your monthly payments may look like at different loan terms.

Finding Your Next Lender

Now that you know how the loan term affects your car loan costs, you can shop with confidence. And, if you're ready to get started in the process of vehicle financing, we want to help!

Here at Auto Credit Express, we know those bad credit borrowers need someone at their side to make the journey a little smoother, and we have just the solution. With our expertise and nationwide network of special finance dealerships, we want to connect you to a local dealership that has the lending resources you're looking for.

The process is fast, free, and simple to get started. Just fill out our car loan request form and we'll take care of the searching for you!