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Choosing the Right Repayment Term for Your Auto Loan

Posted on Sep 07, 2012 by Thalia Green
Sep 07

When you go to apply for an auto loan, one of the questions your lender will ask is how long you want the repayment term to be. The repayment term affects two major factors: your monthly payment and your total interest cost. Before you visit the lender, learn the benefits of longer and shorter repayment terms.


Benefits of a Longer Repayment Term

  • Lower monthly payment because payments are stretched out over a longer time frame, which can help alleviate strain on your cash flow and live on a balanced budget
  • Making payments on the auto loan will provide you with more years of credit history, which can help you boost your score and get better rates on loans in the future


Benefits of a Shorter Repayment Term

  • Finish paying off the auto loan sooner, which makes that portion of your monthly income available for other purposes, like paying down debt or saving for a down payment
  • Pay less total money in interest because you are paying down the principal balance of your loan faster than you would be on a longer repayment term
  • Gain equity in your vehicle faster, which helps you avoid being underwater on your auto loan when you get your next vehicle


Choosing a repayment term isn't a decision you should jump into without understanding the implications of your choice. There are advantages to longer and shorter terms, so choose the length that works best for your needs.

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