Are you looking around for a loan to finance your home, car or education? While Cobb County banks will definitely consider your income and credit history when you apply for the loan— you can also use loan length to your advantage.
In general, the longer the loan— the worse off you’ll be. Edmunds.com states that the average loan is 60+ months long. Many financial experts (like Suzy Ormond) believe that any loan beyond 36 months is financially irresponsible. That’s because lenders can help you get a lower monthly payment by extending the length of the loan— however, you’ll pay more for the vehicle (in terms of your total interest paid) over a longer loan’s span than you generally would over a shorter loan’s span.
The typical length for a loan varies. Depending upon what you’re financing, you could be facing these loan lengths:
- Cars. According to Edmunds.com data, the length of loans has slowly increased over the years. In 2014, the average length of a car loan was 60 months or more for 62 percent of car loans. Twenty percent of buyers financed loans for 73 to 84 months. Buyers usually go for longer loans to decrease the monthly payment, but you’ll end up paying more total interest and finance charges with longer loans.
- Homes. Most banks offer home mortgages for 10, 15 or 20 years. However, the most popular loan is for 30 years, because again, the total monthly payment is often lower. Oftentimes, homeowners can pay off a 30-year mortgage quicker by making larger payments (just be sure your bank allows for early payoff). That way, they’ll avoid risking being strapped with a larger 15-year loan payment that they may not be able to faithfully pay.
- Student Loans. Many student loan lenders calculate 10-year terms for repayment. For example, a student loan of $25,000 (the average amount of debt college students have) repaid over 10 years at a 6.8 percent interest rate yields a $280 payment per month. If you borrow more than that, your payment will be higher. Once you land a job and create a budget, you’ll have a better idea of whether you can make the payment or not. If you can’t meet the monthly payment, negotiate a longer payment plan by contacting the lender.
In general, it pays to secure a home, car or student loan for the lowest amount possible. In most cases, you’ll better manage your loan payments by securing the lowest interest rates and putting down as much money as you can on a home or car purchase.
For help navigating your purchase or loan, contact BrightPath Mortgage today for expert advice!
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