Car Loan Term - Understanding your Financial Commitments

Car loan term is the actual term or duration of a car loan. Some car loan providers also call it as loan period or loan duration. Car loan term can be anywhere between 12 months to 60 months.


You may see a Vauxhall Adam Hatchback for £12,179. Monthly payment shown is £215.05 at an annual interest rate of 7.4%. Somewhere in the deal you will see loan term or loan duration as, say, 36 months. This is a car loan term.

How can car loan term affect PCP finances?

Car loan term can have an impact on the overall PCP finances. The car loan term influences the monthly PCP payment, GMFV, total interest payment, and the total amount borrowed. A longer term may mean a lesser monthly PCP payment, but higher total interest paid. Similarly, a shorter term may mean a higher GMFV and lower total amount payable.

Example 1:

Suppose you want to buy a new Renault Megane Coupe priced at £14,196. For a car loan term of 36 months, you may be proposed an annual interest rate of 5% and a GMFV of £5,290. Your monthly payment will be £266.93. The total to be repaid will be £8,906. Your total amount borrowed will be £9,609.12, and you will be paying a total interest of £703.12 over the 36-month term.

If you want to buy the same Megane Coupe over a loan term of 48 months, there will be a noteworthy change in the finances. Your GMFV will reduce to £4,876.60. The dealer may charge you a higher annual interest rate of 9.1%. Because of the longer term, your monthly payment will be lower at £232.36. Moreover, this monthly PCP payment will be calculated on the total to be repaid of £9,319.4. Also, your total interest paid will increase greatly to £1,833.88, and your total amount borrowed will increase to £11,153.28.

As you can see, the car loan term can have significant implications on your overall car loan finances. We recommend you to use our PCP calculator to understand the impact of car loan term on various deals.

iCalculator tip:

In case you have the cash, it is always prudent to have a lower loan term as this will help you settle off the loan quickly. While the monthly amount may seem high, you will be saving a lot on interest payments in the deal.