Finding the Loan Term ‘Sweet Spot’

You’ve spotted the perfect car, maybe taken it for a spin around the block. The keys are almost in your hand – but how’s that loan looking?

When it comes to organising the finance for your new vehicle, the term you choose to repay your loan over can make a big difference.

Too short a term, and the payments can be a bit chunky. Too long and you can end up with a loan that hangs around when it really shouldn’t. Here are a few things to think about.

The cost

In the simplest terms, the shorter the term of your loan, the higher your repayments will be. But you will pay less interest than the same loan over a longer term.

A longer term stretches out your loan and gives you smaller repayments, but there is more interest charged over that longer period.

There are lots of calculators online, including on our site, that let you look at your options, and we can help you with any questions you have.

Your budget

Whatever term you choose, it needs to work with your budget.

There’s nothing worse than signing up to payments that are too high, and then struggling to make ends meet.

Before taking on debt (any debt) it’s a good idea to draw up a budget to work out what your current expenses are, and how much flexibility you have to cover a new loan payment. When doing your budget, it’s super important to make sure it is realistic: use amounts that accurately reflect expenses and spending and ensure that you consider unexpected costs that can come out the blue and out pressure on the disposable income.

In a nutshell, when considering the term of your loan, you’re looking for the sweet spot: (1) a repayment amount that you can comfortably afford even if some unexpected costs come up, (2) a loan term that is not unnecessarily long and thereby more expensive in total cost of interest.

And remember, your lender may offer the option of increasing the repayments or making extra lump sum payments as time goes on if you get a pay rise or other extra income and want to knock down your loan balance. Note: Sometimes there is a fee payable when paying off a loan early but this will be made clear in your loan agreement.

Ready to talk?

If you’ve got your eye on a new ride, get in touch. We are big on taking a personal approach to finance and can help with any questions or queries you have about how we can help you get on the road.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments. This information does not take into account your objectives, financial situation or needs.  To consider whether a credit product is right for you speak to a licensed Finance Broker and review the product issuers Target Market Determination (TMD) before making a purchase decision.