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Do You Need A Short Term Or Long Term Car Loan...

12 March 2015, 05:30 PM

Purchasing a car is one of the biggest decisions in one’s life, since it requires financial management. This is the reason why over 90% buyers take car loans in India and elsewhere. If you are thinking of car financing, you should try choosing a right bank that offers you a low rate of interest. Besides finalizing the aforementioned, one needs to also decide on the loan duration. Just so you know, there are short term loans or long term loans. Here we’re outlining a few points that will help you decide on loan duration or terms.

Long term loans

Many borrowers would find a longer loan term more alluring than the short term. This type of auto loan is a good option for subprime borrowers or people with limited credit, as lower EMIs are more affordable and manageable. However, there are few drawbacks as well.

  1. Higher Interest Costs: Borrowers will have to pay more for long-duration car finance in India. Experts recommend a maximum five year loan term or less, if a borrower can afford.

  2. Negative Equity: A new car, usually, gets devalued about 22 percent in its first year. Many borrowers try and get a car that is more expensive than they can actually afford, but that ends up ruining their monthly fund management.

  3. Low Resale Value: A five year old car has higher resale value than a seven year old one. Cars with longer loan terms are not much valuable in the used car market.

Short term loans

Short term finance is the best way to raise fund, get lower interest rate and reduce vehicle’s total cost. Moreover, you can lower negative equity by paying your debts faster. However, a borrower has to pay higher EMIs.

  1. More competitive prices: Short term auto loans are very common in the industry. Therefore, dealerships and car manufacturers offer low interest rate and car rebate options. This competition among lenders helps you get the best deal, and reduce the total cost of the car.

  2. Less interest: Your EMIs or monthly payments might be high, but your loan term gets short which means you have to pay less interest in entire loan duration.

  3. Lower negative equity: Faster you re-pay your debts, the lower negative equity will get.  


Experts suggest opting for the short term auto loans at best interest rate. Some people may not find it appealing, since it includes higher monthly payments or EMIs and also limit their car options. However, it has long term benefits such as lower interest rate, lower negative equity and faster debt payment. So, it’s always a good idea to get short term car finance in India.

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