When buying a car, "term" almost always refers to the loan term, which is the length of time you have to pay back the auto loan. It's typically expressed in months, with common options being 36, 48, 60, 72, or even 84 months. The term you choose is a critical decision because it directly impacts your monthly payment and the total amount of interest you'll pay over the life of the loan. A longer term means a lower monthly payment, but you'll pay significantly more in interest. A shorter term has higher monthly payments but results in less total interest paid and faster ownership of the vehicle.
The choice of term is a balancing act between your monthly budget and the overall cost of the car. For example, a 60-month (5-year) loan is a very common benchmark. Stretching the term to 72 or 84 months can make a more expensive car seem affordable on a monthly basis, but it comes with risks. You'll be paying interest for a longer period, and you risk being "upside-down" on the loan (owing more than the car's value) for a significant portion of the term, especially since cars depreciate, or lose value, quickly.
Here’s a simplified example of how a $30,000 loan at a 5% annual percentage rate (APR) is affected by the term:
| Loan Term (Months) | Monthly Payment | Total Interest Paid |
|---|
| 36 | $899 | $2,364 |
| 48 | $691 | $3,168 |
| 60 | $566 | $3,968 |
| 72 | $483 | $4,792 |
| 84 | $425 | $5,684 |
As you can see, the monthly payment drops with a longer term, but the total cost of borrowing increases. It's generally recommended to choose the shortest loan term you can comfortably afford to minimize overall costs.
