How Long Should My Loan Be?
Refinancing your auto loan can be an important step to lower your monthly payments, get a better rate or save money in the long run. But what is a good term length to make the most of refinancing your vehicle?
The best term length for refinancing your auto loan depends on things like your budget needs, how long you intend to keep your vehicle, long-term financial goals and more. Many auto loan refinance companies, including Mode by GM Financial, offer refinancing loans between 36-75 months. Let’s break down some of the advantages of short-term and long-term auto refinance loans.
Short-term auto refinancing benefits
If you’re looking to save money in the long run, a shorter term is something you should consider. The shorter your auto loan is, the sooner you’ll pay it off and own your vehicle outright. Loans ranging from 36-48 months typically mean you’ll have a higher monthly payment, but you’ll end up paying less in interest along the way. This strategy ultimately frees up money sooner for other expenses like a big trip, new furniture or remodeling a room in your home.
Take Shawna, for example. She wants a new vehicle but doesn’t want to wait another five years to pay off her loan balance. Her credit has also improved since securing the original loan a year ago. If she applied to refinance her original loan with Mode, she may be able to get better terms, like a lower interest rate, reduced payments or a shorter term.
Long-term auto refinancing benefits
If you’re looking for more flexibility in your monthly budget, a longer term is something you should explore. The longer your auto loan is, the lower your monthly payments will be. Loans ranging from 60-72 months usually mean you’ll pay more interest over time, but you’ll have more money each month for other purchases.
One thing to ask yourself before signing a long-term auto refinance loan is if you want to be making payments on an older vehicle that could require increased maintenance. You won’t want to be paying more for your vehicle than its market value, also known as being underwater.
Look at Larry’s scenario. He loves his vehicle and plans to keep it when he’s finished paying it off. He recently had some additional expenses added to his plate and needs a little breathing room in his budget. Interest rates have lowered since he took out his original auto loan, so he used the calculator tool to estimate that he could refinance for a longer period of time to lock in lower monthly payments. He also calculated that he would not be spending too much more in interest over the length of his new 60-month refinance loan, which gives him confidence that he’s making the best financial move for him.
As you can see, there are a lot of considerations that go into determining how long your auto loan should be. Weigh the pros and cons of refinancing for your situation. When you’re ready, you can get started on your Mode refinance application.1 Mode is backed by GM Financial, so it’s financing you can trust.
1Current GM Financial loan customers are not eligible to refinance with Mode.
By Julie Powell, GM Financial