Top 3 Reasons Why a Longer Term Car Loan May be Better for You

Top 3 Reasons Why a Longer Term Car Loan May be Better for You
  • Opening Intro -

    In buying a car it's often wise to consider the financing arrangements first.

    Before ever stepping foot in a dealership (must less falling head-over-heels in love with a new car), knowing your financing options and carefully planning the details will help to ensure a smart purchase.


Smart car purchases include not only buying the right vehicle to match your needs and preferences, but also making sure that the financial terms of the transaction work to your advantage.

Whether financing an automobile purchase through a dealership, or arranging financing independently, there are numerous variations to consider. One is the period of the loan (e.g., 36, 48, 60 months, etc.). While each personal or family circumstances are likely to be different, here are several reasons in favor of choosing the longest loan term available.

1) To Lower Monthly Payment

The first and most obvious reason to choose a longer term loan is to keep the monthly payments lower. The disadvantage is that more total interest will be paid over the life of the loan. Still for some car buyers a lower monthly payment is high in importance.

If a personal or family budget centers around a target monthly budget number, then keeping the monthly goal in-bounds might be more important than the fact that payments will go on longer and the total interest paid will be higher. For many people there’s an ongoing need to manage purchases whether for automobiles, home repairs, or education costs for children, so there may always be a need for making payments on something. In cases like these then as long as the monthly payment fits within the established budget then they’ve met their objective.

2) To Take Advantage of Low Interest Rates

In the current age of historically low interest rates the cost of money can be downright cheap. If a low interest rate can be secured then there’s really little reason not to extend the term of the loan for as long as possible. This is especially true if a car buyer has another use for funds that will bring them a greater return than the cost of the money.

Even during times when interest rates are higher, automobile manufacturers will sometimes "buy-down" the financing rates as part of their promotional offerings. In such cases these artificially low interest rates are effectively a discount for savvy car shoppers. Remember that when the cost of money is low (in some cases even zero) then it makes sense to extend the term of the financing for as long as possible.

3) To Match the Period of Payment with the Period of Automobile Ownership

Some car owners keep their cars for many years while others trade vehicles in every year or two, with many serviceable years left in the car. Trading in a new car every year or so is an expensive way to own cars since new cars depreciate significantly in the first years or ownership. For consumers who want to lower their effective annual cost of automobile ownership then keeping cars for an extended period of time is one way to do it. Well maintained automobiles from the top manufacturers can easily reach and even surpass 200,000 miles.

If a person is going to own a car for an extended period then it may be reasonable to spread out the period of time they take to pay for it. Doing so makes it easier to manage payments within a budget, and payment for the car is more closely aligned with the period of ownership.

Ron McCoy is an observer of the automobile industry and writes on various automotive topics for Mile High Honda in Denver, Colorado.


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