Focusing on loan terms rather than actual car payment is good advice

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Pay attention to car loan terms as much as the car payment itself. Image from Wikimedia Commons.

Occasionally, someone might hear that they shouldn’t worry as much about the monthly car payment as much as the total loan terms. That is sound advice for many people, though it might not make as much sense for some.

Monthly car payment versus total car payment

Buying a new or used car can be daunting. Most people can’t buy directly from the factory, which means they have to go through a dealer and not all are on the level. At that, not everyone can afford to pay cash, which means most people have to get some sort of financing, meaning a loan and a car payment.

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As far as car payments go, it would stand to reason that the best idea is to get the lowest monthly payments possible. Certainly not bad advice, but there are a great deal of articles out there, such as a recent one on Time magazine’s website, cautioning against focusing on the monthly payments. The reason is that by only focusing on the payment, one can miss other crucial details, such as how much one might pay in interest. It is fairly sound advice, at least for many people.


People, as it turns out, are special and unique little butterfly snowflakes and what is good for one person isn’t always for another. That includes advice to not focus on monthly car loan payments.

The crux of it has to do with interest and the length of the car loan. The Federal Trade Commission recommends plugging the monthly payment into a payment calculator. That will tell you how much you’re paying in total, which could add up to a lot more than one might think after interest and any possible financing charges.

Also, the number of payments matters, or the car loan term. Most car loans are between 36 and 60 months or three to five years. Some lenders will even offer a six year loan. If a person were to pay $200 per month for 60 months, that’s $12,000. However, a $300 payment over 36 months is $10,800. Some dealerships will accentuate the low payment to get a person into a longer loan, thereby making more money from them.

Where it makes no sense

For some people, it doesn’t make sense to focus on the car payment amount, though that depends on exactly how long one plans on keeping the vehicle. If a person intends to drive the car until the wheels fall off and the engine sputters its last, then it would make sense to find a loan that results in the least amount paid overall when they go to Augusta, Ga., Buffalo, N.Y., or Edmunds, Wa., car lots.

However, the person who doesn’t intend on keeping the car very long is better served by getting the lowest payment possible. In fact, that person is probably better off leasing, rather than buying. That sort, though, are starting to become a minority, as the average length of car ownership is increasing. According to Kelly Blue Book, the average length of car ownership was found by R.L. Polk and Co., in a study released in February, to be 71.4 months, just over 6 years.





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