How Long is the Ideal Car Loan?
Almost anyone can afford to buy a brand-new car in the Philippines due to the aggressive promotion of low downpayment promos, cash discounts, and other payment options. Regardless which type of car promo you prefer, the main objective of these deals is to make the payment option more financially flexible and convenient. However, you need to be a smart buyer as payment terms involving brand-new cars could be a headache. With that in mind, what is the most ideal payment duration when you’re looking to buy a brand-new car? In the Philippines, the usual maximum length for a car loan is five years (60 months) but, you can opt to take the shorter loan period of three years. Which is better? Five or three years? If you have the means, taking a shorter loan period of three years is the better choice. Here are three reasons why.
Lower Interest Rate
Three year loan has a lower interest rate as compared to a five-year plan. As such, you’ll save more money in the long run because interest rate is relatively cheaper. The only downside of the three-year plan is you need to pay higher monthly payments but then again, if you have the resources, it is the better choice.
Be debt free earlier
The shorter car loan payment will give you the chance to be debt-free at an earlier date. Driving a car that’s already fully-paid is a greater feeling as compared to worrying about your monthly payments that will lasts for two more years. Moreover, car ownership involves other costs such as fuel, maintenance, registration, among others.
Car’s resale value
The duration of the loan term can also affect the car’s resale value. If there’s an emergency and you need to sell your car, a paid loan will enable you to sell it easier and faster. On the other hand, if the loan is not yet paid, you can’t pass the payment terms to the buyer. You will still be the one responsible to pay those monthly payment–imagine if you opt to get a five-year car loan and you find yourself in a similar situation.
Tip: The first thing you need to do before you even consider buying a brand-new car is to set your realistic budget and stick to it no matter what. By doing this, you’ll be able to determine the right expectation as to what brand-new car you can afford. After which, do a thorough computation of the payment terms. If the monthly payment is too high, consider your options as you might be aiming to buy a car that’s beyond your budget. However, if you really love that certain car, the next best thing to do is to wait for around two more years and save more money so that monthly payments will not be much of a problem.