How long are car finance contracts?
Instead of paying for a new car in full, you can choose to get car finance to help spread the cost over time
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How long should my car finance be?
Car finance agreements can run from 36-60 months, depending on which type of finance you choose.
You could choose a longer car finance agreement if you wanted to spread the cost of the car, resulting in smaller monthly payments but for a longer period of time. Bear in mind that this way you’ll pay larger amounts of interest, and therefore the total amount you’ll pay is higher.
However, if you’re able to pay higher amounts each month then you may choose to shorten the length of your contract to pay the car off faster.
The length of your contract is up to you – a shorter term usually means higher monthly payments, but you’ll reach the end of your contract sooner.
Long-term car finance benefits
Essentially, the longer your car finance plan, the lower your monthly payments will be. This is simply because you’re spreading out the total cost of your vehicle over a longer period.
This means it offers added protection against any sudden emergencies that you may have to fork out for, because it leaves more money for you to save each month. This doesn’t just go for emergencies, of course – it goes for everyday life too.
Long-term car finance disadvantages
The reason you may not want to opt for a longer finance plan is because interest rates tend to be higher, making it more expensive than a shorter loan in the long run.
Short-term car finance benefits
Short-term car finance plans are often seen as the safer option because you are not spreading yourself out across several years, and are instead focusing on a shorter-term financial commitment. This reduces the risk of any financial issues that may spring up in the future.
Another reason this might be the better option is the fact that the shorter the plan is, the less interest you’ll pay, making this the cheapest choice – even if the monthly payments are initially higher.
If you want to sell your car at the end of the term, you’re better off opting for a shorter plan because generally, newer cars are more desirable on the used market.
Short-term car finance disadvantages
Short-term car finance may look like the most appealing option, but as with everything in life, there are a few drawbacks.
If you happen to hit a large financial issue, the impact will be greater because you are spending so much more a month on your car.
For example, if you suddenly find yourself without a job, you’ll need to scrape together more money to pay for your car that month.
Does the age of my car change anything?
No matter the situation, the lender will always look at the age of the car you wish to finance.
Most of the time they won’t deal with cars older than 10 years old, so this is when you’d consult a specialist or classic car finance broker, or consider a personal loan that’s not secured to the vehicle.