The number one rule about any type of loan (whether its a mortgage, auto loan, or personal loan) is that the longer the loan term is, the more money the loan will cost you. What does this mean? Although getting a longer loan term can make payments seem smaller, you are being charged interest every single month. So more months to pay means more interest to pay. A longer loan term should also be avoided by people who have less than perfect credit.
Every single day you have a car loan, there is interest being added to it. Again, the longer the term of the car loan, the more interest the lender will charge you. If you already have bad credit, a long-term loan is also bad news because you will most likely be getting a higher interest rate than a borrower who has bad credit.
At CrediReady, we know it can be hard to get financed by auto lenders when you have bad credit. If you want to save money in the long run, it will be best to get the shortest loan term you possibly can.
Remember that dealers will also have you pay upfront costs for TTL, which is short for Taxes, Title, and License fees. Another trick to saving money on your auto loan is by providing a down payment. Although most lenders only require a 10% down or $1,000 down, try to put down 20% to save you money from some expensive interest. The larger the down payment you can provide, the less money you will be borrowing from your lender.
Another positive attribute of a short-term auto loan is that if the car depreciates quickly or has a major issue, you will have paid the car off. Typically, the average auto loan term is 60 months (5 years) long. Over that time period, you may have some minor fender benders or mechanical issues that could affect the value of the car.
Lastly, another reason to get a short-term auto loan is that it can help boost your credit score Making your monthly payments in full and on time gives you a big advantage when it comes to building your credit, especially if improving your credit score is a goal you have for yourself. As your credit score increases thanks to your consistent payments, you might be eligible to refinance your auto loan as well at a much more affordable rate.
All in all, shopping for a new car can be an exciting time. From the moment you enter the dealership, it can feel like a fantasy world filled with unlimited options. However, if you are shopping for a car with bad credit, CrediReady can help. Our nationwide network of trusted lenders and verified dealers work with buyers in all credit situations around the country. Take a moment to fill out our free no-obligation car loan inquiry form today to see how much you can save on your next auto loan!