Buying a new or used vehicle and finding the best car loan or equipment finance are laborious tasks that require many big decisions. One of the biggest choices a buyer needs to make when taking out a car loan is whether to opt for a shorter or longer tenure. Lending expert ‘Positive Lending Solutions’ explains the difference between the two and reveals their best advice for choosing the right one.
Generally speaking, car loan tenure will vary depending on the borrower’s financial circumstances at the time of purchase, according to Positive Lending Solutions. They explain that some buyers prefer to lock in a loan that they are able to pay off over the maximum number of years, while others decide to pay back the loan as quickly as possible over fewer years.
Shorter loan tenures, says Positive Lending Solutions, allow buyers to immediately access the funds for a new or used vehicle as they are faster to process. This is because they require little or no collateral to secure the loan – however, this often comes with higher interest rates. If a buyer is in need of a car as soon as possible and can afford the higher interest rates and heftier monthly repayments, shorter tenure loans are likely the right option for them.
On the other hand, longer tenure loans mean smaller monthly installments and lower interest rates. This would allow a motorist to purchase a newer or more expensive car than they would be able to afford with a short tenure loan or no loan at all. Positive Lending Solutions reminds buyers that although interest rates are lower, over time the loan will accrue more interest than a shorter tenure would. Additionally, the buyer is locked in for a typical term of 5-7 years; to repay the loan earlier, the buyer will likely incur an early repayment fee.