The duration of an auto loan, generally between 4 and 84 months, is an important parameter to take into account. Indeed, the longer the duration, the higher the total cost of credit.
You need a car loan to buy a car? To choose the right repayment period of your car loan, it is necessary to understand the mechanism of such a loan and more specifically, the impact of the repayment term on the total cost of credit. Explanations.
The characteristics of auto credit
The car loan is part of the category of so-called assigned loans governed by the Code of consumption which means that it requires a proof of purchase. Thus, it can only be intended to finance the purchase of a chosen vehicle, whether new or used. The borrower will have to present the purchase order of the car he wants to buy from the lender.
The repayment period of the car loan varies from 4 to 84 months, or 7 years, depending on the profile of the borrower and the conditions set by the bank. The amount of this loan can reach up to 75,000 USD. In France, the average amount borrowed under a car loan is between 13,000 and 15,000 USD.
The link between monthly payments and the duration of the car loan
The duration of this loan is directly related to the amount of the monthly payments. Indeed, the longer it will be, the lower the monthly payments and vice versa. When you subscribe, the advisor will use your debt ratio and the amount of your monthly income after deducting your fixed expenses to calculate the maximum amount you can repay each month. This amount, based on the purchase price of the vehicle, will allow you to estimate the duration of your credit.
By opting for a shorter repayment term, your monthly payments will be larger but in the end, the loan will come back cheaper since you will pay less interest. You need to find the right balance between the amount of the monthly payments and the total cost of the credit . The objective is to choose the highest monthly payment while respecting the monthly debt ratio accepted by banks (33% of revenues).
Why do a car credit simulation online?
Buying a car on credit commits you for several years. Before subscription, it is therefore advisable to carefully assess the risks related to the non-payment of monthly payments and to take out insurance. Free and without obligation, the online simulator allows you to get an overview of the various offers on the market. Its use is simple since you only need to indicate: the nature of your project, the amount you wish to borrow, the duration and the amount of monthly payments desired. The result of the online car credit simulation tells you in particular the number of monthly payments required, the total cost of credit, the lending rate, the annual percentage rate of charge (APR), the amount of interest and fees.
The loan simulation, however, does not correspond to a loan application. This request requires the respect of a strict procedure put in place to protect the consumer.