Is a 36 month finance term the best car loan option when buying a new car?


When financing a car, a longer loan term may seem attractive to many buyers because of the lower monthly payments. However, these lower monthly payments usually come with a higher interest rate for the term of the car loan. This is why lenders offer shorter loan terms of 36 months. If you can afford a 36 month loan, it could be the ideal compromise between financing a car and being financially free at a faster pace. Let’s take a closer look.

A 36-month car loan has its advantages

Line of cars at a dealership | Ina Fassbender/AFP via Getty Images

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The main advantage of opting for a 36 month loan is to have less monthly payments and to have a lower interest rate than you would get with a longer term loan. According to The balance, “a 36-month car loan, as an intermediate term, is attractive to buyers who can afford average monthly payments and average interest terms.” In this case, if you can afford the loan term of 36 months, you will pay less overall by having a lower interest rate and you will also finish paying it sooner.

By paying off the car loan quickly, not only will you own the car sooner, but you’ll also free up that extra money for emergency funds, savings, or extra pocket money each month. Let’s not forget interest rates. Having a lower interest rate can save you a lot of money in the end.

For example, if you were to finance a $25,000 car with no down payment for 36 months and an interest rate of 1.9%, you would pay $739 in interest over the life of the loan. However, your monthly payment would be $714.

On the other hand, if you were to finance that same $25,000 for 60 months at 4.9% interest, you would pay $3,238 in interest over the life of the loan. However, your monthly payments would be more manageable at $470.

It’s no wonder many buyers opt for a 60 month term. However, if you can afford the higher monthly payment, obviously the 36 month term can save you money in the end.

There’s a big downside to a 36 month car loan

A person driving a car

A person driving a car on a road. | Unsplash

The biggest and most obvious downside of going with a 36 month car loan is the higher monthly payments. By paying the higher amount, you won’t have as much money to save each month, and if something happens to the car during the term of the loan, you may not have money for repairs.

A shorter loan term is a good solution if you can afford it

A close up of a car's headlight

A person driving a car on a road. | Unsplash

Ultimately, if you can afford the higher monthly payment of a 36 month loan, this might be your best bet. Of course, there are longer terms of 48, 60, and 72 months, but paying more interest can offset those lower monthly payments.

As a middle ground, you can always opt for a longer-term loan and then pay more money for the loan each month. That way, if there are months where you can’t afford the highest payment, you can always resort to paying the lowest minimum payment instead.

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