Short- vs. Long-term Car Loans

One of the most important things you need to think about when financing a vehicle is the length of your car loan, referred to as your loan term. Depending on your financial situation, a longer loan term could prove to be better. But, if you can, it’s usually best to choose a short loan term.

Car loan terms are averaging around 72 months, which is six years. Changing your loan term impacts all other parts of your financing agreement with your lender such as the monthly payment and interest rate.

Shorter Loan Terms


  • Short- vs. Long-term Car LoansCar loan is paid off earlier – Shorter loan terms may result in a higher monthly payment, but the more you pay each month, the closer you are to paying off the full loan balance.
  • Less interest – You pay less in overall interest charges when you take out a shorter loan term.
  • Decreases the chance of being upside down – When you take out a shorter loan term, a higher percentage of your monthly payment goes toward the principal of the loan. This means you decrease the time your vehicle is upside down and you build equity sooner.


  • Higher monthly payment – You need to make sure you’re able to afford the higher monthly payment of a shorter loan term.
  • May need a bigger down payment – If you want a shorter loan term and low monthly payment, you need a larger down payment.

Short term loans can be a great option if you have the cash upfront and the budget to support it. Be sure to plan ahead and be certain that the auto loan fits within your budget. Otherwise, you could find yourself in trouble down the road struggling to make your car payment.

Longer Loan Terms


  • Lower monthly payment – For a given loan amount, the longer the loan term, the lower the monthly payment.
  • Financial flexibility – Choosing a longer loan term gives you more options. For example, if you get a raise or a higher-paying job, you can increase the amount you pay each month to pay off the loan sooner and save money on interest charges.


  • Risk being upside down for longer – When you choose a longer loan term, you risk being upside down on the car for a longer period of time. Having a vehicle with negative equity makes it difficult to trade in, sell, or refinance.
  • Lower resale value and more repairs – Because you may be keeping your car for a longer period of time, its resale value will be lower and you run the risk of it needing expensive repairs, especially if it’s a used vehicle or beyond the new car warranty period.
  • More interest – Your interest rate will typically be higher, while the longer the loan term, the more you end up paying in interest charges. This means you end up paying more overall for your auto loan just because of the longer term.

Choosing a longer loan term for auto financing is often seen as the safer route, especially when you’re on a tight budget or your income fluctuates. When discussing a loan term with your lender, consider whether or not a lower payment and flexibility is more important to you than retaining value in your vehicle and saving on interest costs.

Picking the Right Car Loan for You

Make sure you weigh your options before making a decision. There are pros and cons to both long and short loan terms. Ultimately, you want the term you choose to save you as much money in interest charges as possible, while still being flexible and affordable.

If you calculated how much car you can afford and you’re ready to buy a vehicle, let The Car Connection help out. With our simple auto loan request form, and our nationwide network of dealerships, we want to connect you to a local dealer that can help you get the financing you need.

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