Long term or short term car loan?

**bjl584** · 10-30-2012, 04:10 AM

Rule of thumb for financing a car is to finance for no more than 36 months and to have the monthly payment not exceed 10% of your monthly take home pay.

By that rule, your friend should go with short term financing (max of 3 years.)

**siggy_freud** · 10-30-2012, 06:58 AM

I usually finance for 60 months and pay as if its a 36 month loan. That way I have flexibility if I need it.

**disneysteve** · 10-30-2012, 08:02 AM

Originally posted by siggy_freud View Post

I usually finance for 60 months and pay as if its a 36 month loan. That way I have flexibility if I need it.

That's okay as long as the interest rate isn't any higher and you have the discipline to make the larger payments. The best thing to do is set it up to pay automatically from your account so you don't have to think about it.

**bjl584** · 10-30-2012, 08:13 AM

Originally posted by siggy_freud View Post

I usually finance for 60 months and pay as if its a 36 month loan. That way I have flexibility if I need it.

I think that this is a good strategy so long as you have the discipline to actually stick to it. The average person will most likely extend the loan out to it's full term as things in their life "come up." For the average person it's probably a better idea to go with the 36 month loan so they are forced into paying it off in that amount of time.

**siggy_freud** · 10-30-2012, 04:21 PM

Originally posted by artwest

Neither.

Instead of taking out a loan and buying a new car, buy a used car and use cash. The depreciation on cars is unbelievable. Pay cash for a 2-3 year old car.

The ability to do that really depends on what car you're after, and how you view a car. For me, it's more of a mode of transportation, it's a sport/hobby, and as such, many of the cars I eye, even used, at in the 20-30k bracket.

I DO agree that whenever possible, buy used. A 6-month old used car can be considerable cheaper than its new counterpart. I've bought one new car in my life (so far) and while it was a fantastic vehicle, I regret not waiting and picking it up slightly used. It would have saved me about $5,000.

**disneysteve** · 10-24-2013, 05:12 AM

Originally posted by mikethom

I recently got an approval for 72 months auto financing program at Greater Central Texas Federal Credit Union. They are very affordable.

That is likely a sign that you are buying a car you can't afford. As stated earlier, a car loan should be for no more than 36 months with a payment not exceeding 10% of your monthly take home.

Suze Orman just spoke about this recently. Some lenders have started doing 7 or even 8 year car loans so that people can "afford" the car they want. Bad, bad, bad move.

**Deteria** · 10-24-2013, 08:36 AM

I took a loan for 5 years, but paid it off in 1.5 years. Always pay monthly amount then make principal payment on top. Interest rate is the same, but just reduces the compiled interest since paid off entire loan early.

Get a longer payback period so it reduces your obligation amount per month. You can get in trouble for not meeting payment requirement, but you can always pay more on a lesser obligation when you have more funds available for the month.

**TheKayla** · 10-24-2013, 09:23 AM

Originally posted by siggy_freud View Post

I usually finance for 60 months and pay as if its a 36 month loan. That way I have flexibility if I need it.

Exactly, I have a 60 month loan much I'm paying more than double my payment and will have it paid off in less than 3 years. The extra flexibility has come in handy more than a few times.

**keen3105** · 10-24-2013, 02:55 PM

Originally posted by Rosaliec View Post

A friend is purchasing a new car and has chosen credit union in Central Texas for financing. But he is unable to decide on whether to go for Long term or short term car loan, which one is better, please reply asap.

Basically if you can't pay it off in 36 months, you can't afford it, don't be one of those people who pays for 60 months to have a car that is worth more than the house... I once saw a Lamborghini sitting in front of a trailer home... no

**TheKayla** · 10-24-2013, 07:09 PM

Originally posted by keen3105 View Post

Basically if you can't pay it off in 36 months, you can't afford it, don't be one of those people who pays for 60 months to have a car that is worth more than the house... I once saw a Lamborghini sitting in front of a trailer home... no

This is very true. Feel free to go with longer financing, but go by the rule that if you wouldn't be able to afford it with the shorter financing, it's too expensive of a car, and either a bigger down payment needs to be made or a cheaper vehicle needs to be chosen.

**Jerry91** · 10-24-2013, 10:54 PM

As cars lose value quickly, it will be better to go for a short term loan.

**dojo** · 10-24-2013, 11:13 PM

I had a 4 year plan back in 2008. A new car, which cost me quite a lot (being taken on loan). If I bothered saving the money for 2 years, I'd have gotten the same car (used for 6 months/1 year, since it was a 2008 model, so it couldn't be older) at a fraction of the price.

When I'll consider replacing it (years from now), I'll certainly pay cash for a good 'deal' instead of almost paying double the price I could have gotten should it be not through a loan.

Anyway, if you really want to get a loan, get it for as little time as possible and pay it off. Don't go for a more expensive car make, get what you can really afford in these conditions (at least I was smart enough to not go for a very expensive car, mine is good enough for what I need, but not 'fancy').

Long term or short term car loan?