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5 min read Published March 02, 2023.
Written by Ben Luthi Written by Contributing writer Ben Luthi is a personal travel and finance writer who enjoys helping others learn how to live life more completely. His work has appeared in several publications, including U.S. News & World Report, USA Today, Yahoo! Finance and more. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down complex topics into manageable bites. The Bankrate promise
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Therefore, this compensation may impact how, where and in what order items are listed, except where prohibited by law. We also offer mortgage, home equity and other home loan products. Other elements, such as our own rules for our website and whether or not a product is available in your area or at your personal credit score can also impact how and where products appear on this site. Although we try to offer an array of offers, Bankrate does not include specific information on every credit or financial products or services. More time-bound terms translate to lower monthly installments on the auto loan. They may offer some advantages for the right buyer — but expect to pay more overall. Before you choose for an 84-month loan, understand the trade-offs and alternatives. What is an 84-month auto loan? Essentially, they’re the same as any auto loan. An 84-month auto loan extends the repayment time to seven years. Your lender will amortize the loan over this term to determine how much you have to pay each month in principal and interest. For example, consider a $20,000 auto loan with an 3.49 percent interest rate. If you choose to go for a 60-month repayment term the monthly amount will be around $364. If you extend that term to 84 months, however, and your monthly installment would fall to $269. But that 60-month term would only cost you 1 825 dollars in interest. Because there’s longer space for the interest rate to pile up, an 84 month term is more expensive. You’ll end up paying $2,571 — nearly $750 more. Reasons to avoid the 84-month term of auto loans While a longer loan term will mean a lower monthly payment but it can be a problem in the future. Here are some possible pitfalls to watch out for more expensive While your monthly payment will be lower with a longer term but the total interest will be higher. However much or little you can finance it, you’ll pay more interest for a longer loan. It might not be enough to be an issue when you’re faced with a lower monthly payments each month however it’s money that could be spent elsewhere. Not only that the 84-month loan rates tend to be higher due to the fact that longer-term loans are riskier for lenders. That’s even if you’re offered the option in any way. Depreciation On average an automobile that is brand new can lose more than 10 percent of its value within the first month following your leave the lot as per . You’ll lose 20 percent -or more within the first year, and 60 % by the fifth year. With a lower monthly payment and a higher risk of . In the event that you wish to sell your vehicle or it is damaged, you’ll have to pay the extra cost out of pocket. Repair issues The older the car, the more costly the repairs will be. With an 84-month loan is a higher chance that you’ll need to spend money on repairs while you still have the monthly installment. If you’re working with an extremely tight budget and a lack of reserve, it can be a major pressure on your finances. Warranty expiration There are a few new vehicles that come with long warranties, but the majority are 3-year or more, with 36,000 miles. If you take out an 84-month loan it will be paying for your car even until the warranty is over. Try to avoid an auto loan duration that is longer than the length of your car’s warranty. If you’re getting a , you likely won’t have any warranty issues to think about. This makes the expected depreciation and average repair costs even more important — so do not skimp on your research. Kelley Blue Book and Edmunds each have estimates of the total cost to own which go beyond the normal repairs which are covered under a warranty. Benefits of an 84-month car loan It’s not all doom and gloom. There are a few advantages of an 84-month term you should look at: Lower monthly payment. Seven years is an extended period — you can borrow more money , and enjoy a fairly affordable monthly cost. If you have a tight budget, an 84-month term may help keep month-to-month costs down. Lower debt-to-income ratio. If you take out an 84-month auto loan the monthly payment will be less than your earnings. Also, a lower rate can help you qualify in the future for loans. Rates that are competitive. If interest rates are low, it can make sense to borrow money as long as possible. It is possible to use the savings to pay off more expensive debt. Just know that 84-month auto loans are more expensive over automobile loans with shorter durations. Consider an 84-month loan for your auto loan There are times when you’re on a budget or don’t have plenty of time to negotiate with a car dealer. If you are limited in the options available, a long-term auto loan may be the best choice. A longer duration is the only way to fit the monthly installments within your budget. There is no penalty when an auto loan is paid off early. The length of the term lets you afford the most reliable, higher quality car. Your car has a long warranty that will reduce overall repair costs. You can be eligible for a low-interest rate and want to invest the difference to earn an increase in the value of your investment. Other auto loan alternatives Use it to understand what a long-term contract costs. If you’re unsure if that a longer-term loan is the right one for you, even with the most favorable 84-month term, there are other options to consider: wait and save. If you’re stuck with one particular model, but you can’t be able to afford the long-term look into waiting until you’ve accumulated enough cash for a higher down amount. Make use of the auto loan to determine the amount it could cut your monthly installment. Opt for a cheaper car. If you don’t have time to save up for a bigger down payment, consider changing your plans to a lower-cost vehicle that can be finance it for a shorter time. Find room in your budget. If you haven’t already, take a look at your income and expenses in the past few months and determine the areas you can cut back in order to accommodate an increased monthly payment. Instead of purchasing, lease. Have shorter terms than auto loans generally approximately three years according to . Despite their shorter terms, they have lower monthly payments because they’re based on the car’s depreciation, not on the sale price. How do you choose the right auto loan duration Consider the amount you’re financing, the interest rate along with your spending plan. It’s not unusual for car customers to select longer terms on their auto loans However, it’s not worth giving in to sales pressure. The shorter your auto loan time frame, the more beneficial. This will not only guarantee that you pay less interest, but it also results in the repayment of the loan sooner. You’ll also have additional cash each month to pay for other obligations and expenses. If you’re not able to afford a higher monthly payment, you could always take a longer repayment term at the start and when your budget is able to allow. If your lender does not charge a prepayment cost You can also pay off your loan early and save money on interest. When you are considering the length of the term be sure to keep your current circumstances as well as your long-term goals and needs in your mind. There isn’t a loan length that’s ideal for every person, therefore understanding your finances will help you determine the most effective path to take. In the end, even though you’ll pay less monthly for an 84-month auto loan but you’ll pay more interest. There’s also the risk of paying more for the loan than the car is worth, and possibly massive repair costs. When deciding on a longer auto loan duration, think about an earlier term to save more overall. Find out more
Written by the writer who contributed to the article. Ben Luthi is a personal finance and travel writer who is passionate about helping others learn how to live their lives more fully. His work has been published in numerous publications such as U.S. News & World Report, USA Today, Yahoo! Finance and many more. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to manage their finances with clear, well-researched facts that break down complex topics into manageable bites.
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