Which loan feature would most generally reduce the total amount paid on a car loan?

Which loan feature would most generally reduce the total amount paid on a car loan?

• A. Higher interest rate
• B. Shorter loan term
• C. Higher down payment
• D. Longer loan term

Answer: (B)

The total you end up paying on a loan comes from the amount borrowed plus the interest that accrues over the time you’re repaying it. Shortening the loan term means you’re paying off the principal faster, so there’s less time for interest to accumulate. That typically lowers the total amount paid over the life of the loan, even though monthly payments will be higher. The other factors either raise the cost (a higher interest rate or a longer term) or, in the case of a larger down payment, reduce the amount financed (and thus reduce total cost), but the effect of not having the loan hang around as long is the most general way to cut the total due.

The total you end up paying on a loan comes from the amount borrowed plus the interest that accrues over the time you’re repaying it. Shortening the loan term means you’re paying off the principal faster, so there’s less time for interest to accumulate. That typically lowers the total amount paid over the life of the loan, even though monthly payments will be higher.

The other factors either raise the cost (a higher interest rate or a longer term) or, in the case of a larger down payment, reduce the amount financed (and thus reduce total cost), but the effect of not having the loan hang around as long is the most general way to cut the total due.