By Jason Kaufman, District Manager – Milwaukee, Marine Credit Union
When it comes to auto loans, the shorter the term, the better. That may be an obvious statement, but there could be a few things you haven’t thought about when planning to purchase, lease or apply for a loan for your next vehicle.
- Having a shorter term loan reduces the principal faster.
- The value of a vehicle will generally drop 19% after the first year and continue to drop at least 15% per year after that. The longer the term the less equity in the vehicle you will have after the loan is paid off in full.
- The longer the term of your loan, the bigger chance you have for an unexpected life event. It will be harder to trade the car in to the dealer with negative equity, causing more negative equity on the newer vehicle and continuing the cycle.
- If you cannot afford a payment on a 4-year term, the vehicle price is probably too high for your budget.
Overall on an auto loan, focus on the length of the term over anything else. The faster you can pay off a loan, the better.