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Short Term Car Loans: Pros & Cons

Short Term Car Loans: Pros & Cons

There are pros and cons to all auto loan types and it’s important to understand as much about them as possible so you can make an informed decision. One popular type of loan is the short term loan.


Our Beamsville auto loans team is going to outline the various pros and cons of short term car loans so you can make informed decisions about finance.


Auto loans in Beamsville


Apparently, the average auto loan in Canada is 5.75 years, which is 72 months. Some loans are longer, up to 84 months which make for lower monthly payments.


Shorter auto loans are popular for many reasons some of which will become obvious below.


The pros of short term auto loans


There are some significant benefits to shorter term auto loans.


Lower interest rates – Some lenders will offer lower rates to shorter loans as the risk of defaulting is lower. The theory is that you’re more likely to complete a 36 month loan than a 72 month loan, so the rate will be lower.


Lower interest overall – The shorter the term, the shorter the period you’re paying interest. While the monthly payments will be higher, the overall cost of borrowing should be lower.


You pay it off faster – It may be obvious, but being free and clear while the car is still relatively new is a big benefit to short term auto loans.


Higher car value for trade in – Once your car is paid off, you can trade it in for another while its value is higher. A three year old car is worth significantly more than a 5-7 year old car so if you’re planning to trade in or trade up once it’s paid, a shorter loan works.


The cons of short term auto loans


There are downsides to shorter auto loans though.


Higher monthly payments – Shorter auto loans means paying more each month to repay the debt. While there are cost benefits to shorter loans, they will be more expensive each month.


May require a larger down payment – You may need to put down more money to be able to make a shorter loan work. That does have upsides of course but does mean you have to save up more money for that down payment.


Shorter auto loans won’t work for everyone. They do cost more each month and may require a larger down payment to balance the monthly cost with the amount you’re borrowing.


They are cheaper to service though. You may get lower interest rates and will pay less over the term. As loan interest is paid monthly, the fewer months you have the loan, the fewer months you’ll be paying interest.


This could save hundreds or even thousands of dollars over the loan.


If you’re not sure whether a shorter auto loan is good for you or not, contact one of our team. We would be happy to explain your options.


If you need help or advice on anything to do with auto loans in Beamsville, contact Car Nation Canada today, we can help!


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Categories: Car News