Do you want to finance the purchase of a new car with a loan? When is the best time to repay it? The following guidelines will help you make the right choice.
A personal choice
Since a car is a significant investment, there is a good chance that you will take out a loan for this. Which term is most interesting for you ultimately depends on the amount you want to borrow and the amount you can pay off monthly. The longer you stretch the term, the smaller the monthly installment and the easier it will be to repay the loan. If you opt for the short pain, you will have to repay more monthly, but you will have paid less interest at the end of the ride.
To get an idea of the amount you have to pay monthly, you can do a simulation. By repeating it for several durations, you immediately notice the difference.
If you also compare the results between banks, you will see that the interest rates that banks ask for the same amount and maturity can vary greatly. Therefore, do not rely blindly on your own bank and also take a look at the offers of other institutions.
Take into account the maximum term
The term is also subject to legal restrictions. For example, for amounts up to 2,500 USD, you can take a maximum of 24 months to pay off. For amounts up to 10,000 euros, this is a maximum of 48 months and those who want to borrow up to 50,000 USD may spread the repayment over a maximum of 72 months.
Don’t spread your loan too long
Because a car falls in value fairly quickly, banks advise not to spread the repayment of a car loan over too long a period. Many lenders recommend a four-year maximum for vehicles that fall within the average price categories. This usually provides enough time to pay off your car loan.
Suppose fate strikes and your car is a total loss, then the payment of your loan often continues to run. If you then want to take out a loan for a new car, the total amount to be paid can get tough.
The distinction between new and second-hand
If you take a closer look at car loans, you will see that the interest rates for new cars are much lower than for second-hand cars. However, that is often not noticeable, because people mainly want to know the amount that they have to pay every month. An important reason for this is that banks estimate the likelihood of second-hand cars that they will not or only partially get their money back. People will be more inclined to stop paying their monthly payments if their (older) car suddenly fails.