Featured image forUnderstanding Loans, Part 3: Loan Terms Matter

This blog post is the third in a three-part series. Read Part 1: How Loans Work and Part 2: Six Questions to Ask Before Taking Out a Loan.

What exactly is the difference between a 12-month loan and a 36-month loan, in terms of money spent? What is the effect of a high interest rate? Is choosing a loan just a matter of finding the one with the lowest monthly repayment amount? It’s not quite so simple, and today we’ll dive into an example to show you why. Be sure to check out our previous two articles in the Understanding Loans series for a quick overview of how loans work, and a list of questions to ask when choosing a loan.

Disclaimer: The following example is strictly representative. Actual loan amounts and terms may vary.

Imagine you need to purchase an adapted van. You’re looking at a Toyota Sienna with a ramp, tie-downs, swivel front seat, and hand controls. After speaking with PATF, you’ve learned that the Office of Vocational Rehabilitation will pay for the adaptations since you’ll use it to get to work, but they will not cover the chassis (the unmodified body of the vehicle), which is going to cost $33,000.

Scenario 1

You’ve been researching your options. The quickest and easiest choice appears to be the financing offered directly through the dealership. They can approve you before you leave the building and it’s fairly painless. If you have a low credit score, you may be looking at terms similar to this:

Loan Amount: $33,000

Loan Terms: 120 months (10 years)

Interest Rate: Fixed 10% (although we’ve seen interest rates as high as 14%!)

Approximate Repayment: $436.09/month

Total Dollars Spent: $52,330.80

Scenario 2

With a high credit score, however, you may be able to secure a lower interest rate. Spread out over 10 years, you’ll have significantly lower monthly repayments, and significantly lower total dollars spent over the life of the loan:

Loan Amount: $33,000

Loan Terms: 120 months (10 years)

Interest Rate: Fixed 4%

Approximate Repayment: $334.10/month

Total Dollars Spent: $40,092.00

Scenario 3

Here’s a similar loan from PATF (Pennsylvania’s alternative financing program for assistive technology), where your credit score does not affect your interest rate:

Loan Amount: $33,000

Loan Terms: 84 months (7 years – PATF’s limit based on the expected life of the vehicle)

Interest Rate: Fixed 3.75% (our interest rate for all loans over $2,000; loans less than $2,000 have a 0% interest rate)

Approximate Repayment: $447.28/month

Total Dollars Spent: $37,571.52

For someone with a low credit score, this is a huge difference. The monthly repayments are slightly higher for the PATF loan compared to the loan in Scenario 1 ($11.19 more per month), however the borrower would save a whopping $14,759.28 over the course of the loan, and would be finished paying it off three years earlier. Not to mention, this example doesn’t take into account any associated fees the vendor may charge. This is the effect of a low interest rate and shortened loan repayment terms.

In the scenario where the borrower has a high credit score, a PATF loan still saves that person money over the course of the loan – $2,520.48 to be exact.

Note: You can use a loan calculator like the one on our homepage to help you do the math on your loan.

Too Good to be True?

At first glance, it doesn’t make sense how PATF can afford to offer these terms, especially when extending loans to borrowers who may not qualify elsewhere due to thin credit or high debt-to-income ratios. But, as a nonprofit, PATF fundraises to be able to buy down the interest rate from our partner banks so that we can offer affordable loan terms with no application fees to Pennsylvanians with disabilities who want to purchase assistive technology. PATF also negotiates with these banks so that we can use our own loan guidelines and eligibility standards.

While our loan process might take slightly longer than with a traditional lender (on average it takes between one and three weeks from when we receive a complete application to when the borrower receives the check in the mail), we are with each applicant every step of the way, guiding our borrowers through the loan process. We also work with individuals to explore other funding resources and advocate for them, making sure they’re getting their assistive technology in the most affordable way that works for them. We believe strongly in consumer choice and consumer control.

The Takeaway

It’s worth it to do a little research and to be thoughtful about taking out a loan. First, decide if a loan is right for you – do you really need the purchase right now, and can you afford to borrow? Then shop around to find out what options are available to you, being sure to ask the six important questions. Finally, do the math so you can understand exactly how much you’ll be paying monthly, and in the long term – a little time spent making calculations in the beginning could save you a significant amount of money in the long run!


Check out our success stories to see how individuals across Pennsylvania of all ages, income levels, and disabilities are choosing PATF loans to finance the assistive technology devices they want and need. Still not sure a loan is the right option for you? Contact us anyway! We’ll help you explore your options and give you the information you need to get the assistive technology you want.