Loan Repayment Periods for Auto Loans

Many people use loans to finance the purchase of a car, either brand new or used. The average auto loan in the US is taken for four years. However it is worth assessing the loan repayment periods for auto loans, as the length of repayment can determine both the interest rate you are offered, and the overall amount you end up repaying for your vehicle.

Ideally an auto loan should be taken for as short a period as possible, as the car will be depreciating in value even as you drive it out of the showroom. There are some lenders who are willing to offer their lowest interest rates to those who elect to take an auto loan over a shorter period. One lender for example offers a rate of 4.5% for a loan of 24 months, whilst a 72 month loan would carry the interest rate of 7%. Of course the actual interest rate offered will be dependant on the borrowers credit score. There are many institutions now offering bad credit auto loans at higher interest rates.

The loan repayment periods offered vary by lenders, with some offering initial terms up to ten years. However you should consider if you still want to be paying for your auto ten years from the date of signing the loan.

Whilst longer term loans may appear more favourable to those whose primary aim is to purchase a car which is out of their price range, it makes far more sense to take a short term loan. That way the loan can be paid off in full whilst you are still making use of the car. You could possibly obtain a reasonable resale value, rather then ending up still paying on a loan for a car which appears expensive 5 years down the line.

One of the key points to check for with any auto loan is that there are no early prepayment or repayment penalties which will penalize you for paying the loan off early. If you want a comfortable monthly repayment to begin with which you know is affordable from your budget, you can always prepay some of the principal down when there is spare cash, and thus reduce the overall interest paid on the loan.

It is possible to take auto loans known as balloon loans, which offer a low monthly repayment for a set period such as 5 years. At the end of this time the borrower then pays off the balance of the loan in full, or refinances the remaining amount of the debt. In some instances the borrower can return the car to the lender and thus have had the use of the car for a set period before returning it.

Whichever repayment terms you opt for be aware of other fees attached to some loans which can make them more expensive than their headline interest rates. The longer the deal you choose to negotiate the more the vehicle is going to cost you in the long term. If you can manage shorter repayment terms astutely you could well be able to move into buying future autos with cash, rather than with loans.