Introduction
This article will talk about the many types of car loan terms and what to look for when shopping for one. Hopefully, this article can help you find the right car loan term that best suits your needs.
Car Loan Terms
1. Fixed Term
This type of car loan term is the most commonly offered. To be classified as a fixed-term loan the term of the loan will remain at one fixed amount for a defined number of months. It is not possible to extend the duration or change the period for which you are obligated to make payments on your loan. This type of loan includes loans with several different periodic payment amounts.
2. Balloon Loan
This type of car loan term is a fixed-term loan with payments that increase until the final payment. This type of car loan term includes an initial period where payments are calculated as an interest rate and principal only. This means that the full amount of your monthly payment goes towards paying down the principal. Payments increase just before the end of this period. Balloon loans are more commonly seen with 60-month loans than any other.
3. Used Car Loans
This type of car loan term is similar to a balloon payment term. The initial period of a used car loan is longer than the balloon periods and totals 108 months, or ten years. This means that the full amount paid for your used car will be paid off at the end of this period. Payments are based on a formula that includes an interest rate, principal, and fees for getting your loan. These fees can be as high as $150 per month on some loans.
Conclusion
Choosing the right car loan term is a large part of buying a car. The more common fixed-term loan terms will typically provide the best rate and benefits for the buyer. Fixed-term loans are also known as no-hassle loans. However, if you are simply looking for the best-used car loan period then you must look into balloon payment packages.
