What are the benefits of short term car finance?
5 October 2023
By Joy Pearson
When it comes to acquiring a new set of wheels, the world of car financing offers a plethora of options, each designed to cater to diverse needs and preferences. One such options that has been gaining traction in recent times is short-term car finance. But what exactly is short-term car finance, and why are more and more people opting for it? In today's post, we'll delve into the ins and outs of short-term car finance, exploring how it works, the advantages it brings to the table, and the reasons behind it's growing popularity.
Short-term car finance, as the name suggests, involves financing a vehicle for a relatively brief duration, typically ranging from 12-36 months. It stands in contrast to the more traditional long-term auto loans, which can extend for 60 months or more. While the extended loan terms offer lower monthly payments, they often come with higher overall interest costs. In contrast, short-term car finance offers a shorter repayment period, which means higher monthly payments but less interest paid over the life of the loan.
One of the most significant benefits of short-term car finance is that potential for substantial interest savings. With a shorter loan term, you'll pay less interest over the life of the loan compared to a longer-term loan. This can result in significant cost savings, making your vehicle purchase more affordable in the long run. Short-term financing also allows you to own your vehicle outright, sooner. Unlike longer-term loans that can stretch out for several years, short-term loans typically have a shorter repayment period. This means you'll likely make more substantial monthly payments, but you'll pat of the loan faster, resulting in full ownership of the vehicle in a shorter time frame.
Vehicles tend to depreciate more rapidly in the years of ownership. With a short-term loan, you'll pay off the vehicle while it's still relatively new. This can help reduce the impact of depreciation of your vehicle's value. As a result, if you decide to sell of trade in the car after paying off the loan, you may get a more favorable resale value compared to a vehicle that had depreciated significantly over a more extended loan term.
Many people opt for short-term car finance because it offers a way to enhance financial efficiency. With a shorter loan term, borrowers can significantly reduce the total interest costs associated with their car loan. This can translate into substantial savings over the life of the loan, making the overall cost of the vehicle more budget-friendly. By minimizing the interest paid, individuals can allocate their resources to other financial priorities, such as savings, investments, or other essential expenses.
Short-term financing is particularly appealing to those who value outright vehicle ownership. Unlike longer-term loans that extend monthly payments over several years, short-term loans have a more condensed repayment period. This means that borrowers will make largely monthly payments but will be able to pay off the loan more swiftly. As a result, they gain full ownership of the vehicle in a shorter time frame, eliminating the need for ongoing monthly payments associated with car loans. This can provide a sense of financial freedom and security, knowing that the vehicle is entirely owned. It's also considered an idea choice for individuals who are risk-averse and wish to minimize their exposure to financial risk. With shorter loan terms, borrowers reduce the likelihood of being in a 'negative equity' situation, where they owe more money on the car loan than the vehicle is worth. This can be crucial for those who want to avoid the challenges of dealing with negative equity, such as limited selling options or higher monthly payments on a new car loan. Short-term financing provides a safer path to car ownership.
Life is dynamic, and circumstances change unexpectedly. Short-term financing aligns with the preferences of individuals who want the flexibility to adapt to evolving needs and preferences. If, for example, you find that your family is expanding, your daily commute is changing, or you're interested in upgrading to a different vehicle model, short-term financing allows you to do so more quickly. Without the burden of a lengthy loan term, you can make changes to your vehicle sooner, ensuring that your transportation aligns with your current lifestyle and requirements.
So, short-term car finance is chosen by individuals for it's financial efficiency, ability to grant outright ownership, low-risk tolerance, and flexibility to accommodate changing preferences. It offers a path to vehicle ownership that minimizes long-term financial obligations and provides greater control over one's financial future. However, the suitability of short-term financing depends on individual financial goals, budget considerations, and personal preferences.