Fincar January 30, 2019 No Comments

Although most borrowers opt for longer term car loans when taking out finance, short term car loans also have their place in the market. Generally speaking, a short term car loan provides a customer around three years to repay the debt. But you might be wondering – who would want to put themselves in a position where they have less time to pay off their loan? However, considerations are far more intricate than just this matter. As with most financing solutions, the optimal outcome will depend on your specific needs. Let’s take a look.

Why might a short term car loan suit me?

Some of the major benefits associated with short term car loans include:

  • Lower interest rates and interest costs – since the loan term is shorter, financiers are less exposed to the risks that accompany long-term lending. This is because their due diligence is far more relevant and likely to be accurate across a shorter, near-term period. In turn, with lower interest rates for the buyer, the total cost of their loan will be less across a short term period.
  • Offset depreciation – most cars will depreciate at a rapid rate, so the sooner you are able to pay off the loan, the more likely it is you avoid a situation where you still need to repay the value of a loan that exceeds the value of the car
  • Clear your debt sooner – from a credit perspective, clearing your debt as soon as you can will position you well as far as your rating, not to mention free up cash for other spending


What are some of the downsides to a short term car loan?

Although short term loans can have distinct advantages, they also present risk to consumers:

  • Larger deposits – it is more customary for financiers of short term car loans to require a larger deposit from the borrower seeing as the loan value will be spread across a shorter time horizon
  • Short term cash flow pressure – with each monthly loan repayment set to be greater under a short term loan, borrowers are more likely to face cash flow pressure in fulfilling their financial commitments


In the end, a short term loan can provide certain borrowers a way to efficiently manage and clear their debt, provided they are in a financial position to do so. Most often this is at a time when other commitments or obligations are minimal.


The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.