How Long Should My Car Loan Term Be with Bad Credit?

The length of your car loan term depends on several factors, but with bad credit, a good rule of thumb is to choose a length that allows you to repay your loan comfortably in the shortest amount of time you can. Let's look at a few ways you can determine your ideal auto loan term, and why shorter terms may be better for bad credit car buyers.

Short-Term vs. Long-Term Car Loans

How Long Should My Car Loan Term Be with Bad Credit?Car loan terms – the length of time you repay an auto loan – come with a wide range of options, typically covering between 36 and 84 months. The shorter you're able to keep your loan term, the less money you pay in interest charges over the length of your loan. When you're already dealing with higher interest rates as a bad credit car buyer, this can make a big difference.

With a shorter term loan, your monthly payment is higher than it would be with a longer loan term, but higher payments lead to less time being upside down, and paying off your loan earlier means that there's likely to be more resale value in your vehicle at the end of your loan.

If you stretch out your loan, you have the benefit of a lower monthly payment, but if you look at the big picture, you're not saving any money – in fact, you're spending more than you may have bargained for.

Save Money by Shortening Your Auto Loan Term

Often, people think that the lower monthly payment offered by a long-term loan is the more appealing way to go. But when you look at the amount of money you can save in the long run by shortening your loan, you may think twice.

Let's look at how loan term length can affect how much money you pay in total. If you're purchasing a $10,500 car and have an 18 percent interest rate due to bad credit, this is how different loan terms affect how much you pay (these calculations don’t include any down payment or trade-in, or tax, title, and license fees):

36-Month Term 48-Month Term 60-Month Term 72-Month Term 84-Month Term
Monthly Payment $380 $308 $267 $239 $221
Total Interest Paid $3,166 $4,305 $5,498 $6,743 $8,038
Total Amount Paid $13,666 $14,805 $15,998 $17,243 $18,538

As you can see, longer loan terms result in lower monthly payments, but the overall cost of financing becomes significantly higher the longer you're paying on the loan.

Consider Your Loan Term before Getting Your Next Vehicle

Now that you know it may be wiser to choose a short-term loan with poor credit, you can make a more informed decision the next time you need to shop for a vehicle. Just remember to factor in the total cost of car ownership when you're deciding how much you can afford to pay each month. All vehicles need regular maintenance, repairs, fuel, and insurance, which all influence whether you're in a position to take out a 48- or a 72-month loan.

If the time has come for you to start looking for your next car, you can begin your research right here at The Car Connection with our New and Used Car sections. When you're ready for the next step, simply fill out our no-obligation auto loan request form, and we'll get to work matching you with a local special finance dealer that has the lending resources to work with bad credit car buyers!


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