What term should I choose on my car loan?

Taking out a car loan is a big financial decision, and there are a variety of options on offer. So it’s important that you weigh up all the options before deciding how you want to structure your loan – including how long you want to take to pay off the loan (this is also known as the term of your loan).

Short terms come with less interest to pay in total but higher regular repayments, and longer terms come with more total interest to pay but lower regular repayments.

Pros and cons of a short loan term

While locking in a shorter loan term means you can pay off your loan faster, it’s important to first check that you have the budget to afford the regular repayments. Additional things to consider when budgeting include the cost of maintaining and repairing your car, insurance, emergencies and other regular bills.

If you have the budget to do so, locking in a shorter car loan term can help you pay off your debt faster and pay less interest overall.

Pros and cons of a long loan term

Longer car loan terms come with the allure of smaller regular repayments, but the payments are stretched over a longer period of time. This means you’ll pay more interest on the car over the term of the loan. Ultimately, it’s important to keep your own budget and affordability in mind – paying a little more interest over the lifetime of the loan may not be a problem if smaller regular repayments are more affordable for you.

Something to consider with this option is whether you can still see yourself driving the car by the end of the term. If you take out a loan with a five-year term, your circumstances may have changed by the time you get to the end of your loan agreement – for example, you may need a bigger vehicle for family or work, or you might simply want something new. In saying that, as long as the car has not depreciated in value by too much you can always look to sell it or trade it in once you’re ready for a change.

When you’re looking to finance a new vehicle, make sure you explore all of your options to find out which car loan term is best for you. Some vehicle loan providers may offer loans with some flexibility in how much you pay regularly, and others may offer loans which have lower repayments and more options at the end of the term (like Marac’s Guaranteed Future Value loan which offers lower regular repayments and the option to retain, return or replace your car at the end of the term). Regardless of which option you choose, there’s no right or wrong loan term – it’ll depend on your individual circumstances and financial needs.

Marac is proud to have provided Kiwis with vehicle finance for over 65 years. Our finance options are designed to make applying for finance fast, easy and straightforward. Check out our repayment calculator to find out how much you might pay for different loan terms.

Marac is a division of Heartland Bank Limited. Responsible lending criteria, fees and charges apply.