When financing a car purchase, you have several options available to you. One of the most popular options is a 60-month auto loan. In this article, we will compare the cost of a $20,000 loan at various terms, including 36, 48, 60, and 72 months.
The term of a loan refers to the length of time you will have to pay back the loan. The longer the term, the lower your monthly payment, but the more interest you will pay over the life of the loan. Let’s take a look at an example to see how the length of the loan term affects the overall cost of the loan.
Suppose you want to finance a $20,000 car loan. The interest rate on the loan is 6%. Using a car loan calculator, we can see how the loan cost varies depending on the loan term.
| Loan Term | Monthly Payment | Total Interest Paid | Total Cost of Loan |
| 36 | $611.33 | $2,204.58 | $22,204.58 |
| 48 | $467.42 | $2,947.93 | $22,947.93 |
| 60 | $386.66 | $3,599.60 | $23,599.60 |
| 72 | $332.91 | $4,263.89 | $24,263.89 |
As you can see, the shorter the term of the loan, the less interest you pay over the life of the loan. However, a shorter term also means a higher monthly payment. The total cost of the loan, including interest, is highest for the 72-month term.
It’s important to note that the interest rate on your loan affects the overall cost of the loan. If you have excellent credit, you may be able to qualify for a lower interest rate, which can significantly reduce the overall cost of the loan. Additionally, many automobile manufactures offer promotional 0% APR car deals to those with the best credit scores.
When deciding on the loan term for your car purchase, it’s important to consider your financial goals and your monthly budget. While a longer term may mean a lower monthly payment, it also means paying more in interest over the life of the loan. A shorter term means paying less interest, but a higher monthly payment. It’s essential to find a balance that works for you.
In addition, it’s essential to consider the total cost of the car, including any fees associated with the purchase. If you can negotiate a lower price for the car, you can reduce the amount you need to finance, which can reduce the overall cost of the loan.
Summary
Overall, when considering the length of your car loan, it’s important to weigh the benefits and drawbacks of each term. A shorter term means paying less interest but a higher monthly payment, while a longer term means a lower monthly payment but more interest paid over the life of the loan. It’s important to find a balance that works for your financial goals and your monthly budget.