The term is how long you take to repay. A longer term spreads the same loan over more payments, so each payment is smaller, but you pay interest for longer and the total cost is higher.
A worked illustration
The table shows one loan repaid over three different terms. The amount and rate are assumptions chosen only to show the pattern. They are not typical or available rates.
| Term | Monthly payment | Total interest |
|---|---|---|
| 48 months | about $732 | about $5,150 |
| 72 months | about $526 | about $7,870 |
| 96 months | about $424 | about $10,710 |
Doubling the term from 48 to 96 months cuts the payment by roughly four-tenths and roughly doubles the interest. Try your own numbers in the calculator.
Other effects of a long term
- Negative equity. The balance falls slowly, so you can owe more than the vehicle is worth for longer.
- Repairs and payments together. You may still be paying after the warranty ends.
- Less flexibility. Trading in early can mean carrying a balance into the next loan.
Choosing a term
- Start from the payment you can manage comfortably, not the highest you could be approved for.
- Find the shortest term that fits that payment.
- Check whether you can make extra payments without a charge, so you can shorten the loan later.