Short Term Car Loans in Canada: Why They Are Better Than Long

Short Term Car Loans in Canada: Why They Are Better Than Long

Posted on September 21, 2022

Longer auto loans are becoming more popular all the time but they aren’t suitable for everyone and every situation. There are times when shorter car loans may work much better.

Our Grimsby auto loans team lists 5 reasons why shorter car loans may be more beneficial than longer ones.

Here’s what they came up with.

1.   You’re in negative equity for longer

When you take out a longer auto loan, you’re immediately upside down. This is true for all types of loan but shorter loans will even things out much faster.

If being upside down bothers you, a longer auto loan means you’re upside down for longer than you would be with a shorter loan.

Negative equity is normal by the way. It’s just some people just don’t like it.

2.   Potentially higher rates of interest

Interest rates depend on a lot of course but they tend to jump a bit on any auto loan over 60 months. You could potentially see a jump of anything up to 2% when you exceed a 60 month term, which costs a lot over that term.

You could be paying anything up to $50 per month more in interest depending on how much you borrow.

3.   You’ll need to keep the car for longer

Longer loans obviously require longer to pay off negative equity and then build equity in the car. That means you’ll need to keep the car for longer in order to make it worth anything as a trade in.

If you trade in your car when you break even, you have nothing to put towards your next Grimsby auto loan. If you wait a further year or two, you’ll have equity in that trade in to use against the loan.

4.   It costs more over the term

You pay interest monthly, so the more months you have the loan, the more interest payments you’ll make. Add a potentially higher interest rate into the mix and longer loans could work out significantly more expensive over the term.

When you take out an auto loan, you should always consider the overall cost as well as the monthly cost. It might surprise you just how much interest you’re paying!

5.   You could be paying for an out of warranty car

Most car warranties will last around 3 years. There are manufacturers that offer more, but the majority are around 3 years. That means you could potentially be driving and still paying for a car that’s out of warranty for quite a while.

That may not make a difference but it may leave you exposed to maintenance and repair costs should things start to go wrong.

As we said at the top, longer auto loans are an effective way to get what you want. However, they aren’t universally suitable and won’t work in all situations.

If you need help deciding what’s right for you, contact one of our team and we would be happy to help.

We will use all our skill and experience to deliver the lowest possible Grimsby auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.

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