Do you need to take out an 84-month auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by providing you with interactive financial calculators and financial tools, publishing original and objective content. This allows users to conduct research and compare information at no cost and help you make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this website are provided by companies who pay us. This compensation may impact how and where products appear on this website, for example, for example, the order in which they may appear in the listing categories and other categories, unless prohibited by law. Our mortgage or home equity, and also other products that lend money to homeowners. This compensation, however, does affect the information we provide, or the reviews you read on this site. We do not contain the vast array of companies or financial deals that might be available to you. SHARE: Standret/Shutterstock
5 min read published March 02, 2023.
The article was written by Ben Luthi Written by Contributing writer Ben Luthi is a personal finance and travel writer who is passionate about helping others discover how to live their lives more completely. His writing has been featured in numerous publications that include U.S. News & World Report, USA Today, Yahoo! Finance, and many numerous others. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to control their finances by providing precise, well-studied and well-documented information that breaks down complex topics into manageable bites. The Bankrate guarantee
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Therefore, this compensation may affect the way, location and in what order products appear within listing categories in the event that they are not permitted by law. This is the case for our credit, mortgage, and other home lending products. Other factors, like our own website rules and whether the product is available in your area or at your self-selected credit score range can also impact how and when products appear on this site. Although we try to offer the most diverse selection of products, Bankrate does not include specific information on each credit or financial product or service. More time-bound terms translate to lower monthly installments on your auto loan. They may offer some advantages for the right buyer -however, you should expect to pay more overall. Before you choose for an 84-month loan be aware of the trade-offs and options. What’s an auto loan? They’re basically identical to any other auto loan. An auto loan extends the repayment time up to 7 years. Your lender is able to amortize your loan over this period to determine the amount you have to pay each month in principal and interest. For instance, let’s consider a $20,000 auto loan with an 3.49 per cent interest. If you were to opt for a 60-month repayment term the monthly amount is $364. You can extend the period to 84 months but your monthly installment would fall to $269. But that 60-month term will only cost you the sum of $1,825 for interest. As there’s more time for interest to stack up, an 84-month period is more expensive. You’ll end up paying $2,571 or approximately $750 more. Reasons to avoid the 84-month term of auto loans Even though a longer loan period means a lower monthly payment, it could be trouble in the future. There are a few potential traps to avoid: More expensive Although your monthly payments are lower when you have the length of the loan but the total interest will be greater. Whatever amount or how little you finance the loan, you’ll be paying more interest for an extended loan. This may not be enough to make an issue when you’re confronted with a less expensive installments each month however it’s money that can be spent elsewhere. Not only that the 84-month loan rates tend to be more expensive because they are riskier for lenders. And that’s if it’s offered even at all. Depreciation On average an automobile that is brand new can be able to lose more than 10% of its value in the first month after you drive it off the lot, according to . The loss can be as high as 20 percent- or more — in the first year and 60 percent within the 5th year. With a lower monthly payment, you have an increased risk of . If you decide to sell your car or it gets completely destroyed, you’ll have to pay the extra cost out of pocket. Repair issues The older the car is, the more expensive repairs will be. If you have an 84-month contract it’s more likely that you’ll have a greater chance of having to pay for repairs while you still have an ongoing monthly payment. If you’re working with limited funds and no reserve, it can cause a huge pressure on your finances. Expired warranty There are some new vehicles that come with long warranties, but they’re usually three years or 36,000 miles. If you have an 84-month loan it will be paying off your car even after the warranty ends. Beware of a loan term that exceeds the length of your car’s warranty. If you’re getting a , there’s a good chance you won’t have any warranty issues to worry about. This makes expected depreciation and average repair costs even more vital. So don’t skimp on research. Kelley Blue Book and Edmunds both offer estimates on the total cost to own that are higher than the general repair costs that are covered by a warranty. Benefits of an 84-month auto loan It’s not all dark and depressing. 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 have a relatively small monthly expense. If you have the budget tight the 84-month period could reduce monthly expenses. Lower debt-to-income ratio. With an 84-month car loan, your monthly payments will be less than your income. A low rate could help you qualify to get future loans. Rates that are competitive. When interest rates are at a low, it can make sense to borrow funds for as long as is possible. It is possible to use the savings to pay off your higher-interest loans. Make sure you know that the 84-month auto loans are more expensive than auto loans with shorter durations. When to consider an auto loan There are circumstances where you are on a tight budget or do not have much room to negotiate with a car dealer. If you are limited in the options available, a long-term auto loan could be the most suitable alternative. A longer duration is the only option to make monthly payments into your budget. There’s no penalty for in the event that the vehicle loan is paid off early. The duration of the loan lets you afford an improved, more reliable automobile. The car you own has a lengthy warranty, which reduces total repair costs. You may get a lower interest rate, and you’ll want to put the money into more return on your investment. Other auto loan options Use an to gain an understanding of the amount a longer-term loan costs. If you’re not sure a longer term is right for you — even with the most favorable 84-month option, there are other options to consider: Wait and save. If you’re stuck on a specific model but can’t pay for it with a long-term you should think about waiting until you have enough cash for a higher down payment. Make use of auto loan to determine the amount it could lower your monthly payments. Opt for a cheaper car. If you’re not able to save enough for a larger down payment, you might want to change your priorities to a lower-cost vehicle that allows you to finance for a shorter period. Look for a place in your budget. If you haven’t already, take a look at your expenses and income over the last few months to determine if there are areas where you can cut back to make room for the higher monthly payments. Instead of purchasing, lease. They have lower times than auto loans generally approximately three years, as per . Despite the shorter term however, they are able to pay lower monthly payments due to the vehicle’s depreciation and not on the sale price. What should you consider when choosing 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 for their auto loans, but it’s certainly not worth compromising to pressure from sales. The shorter your auto loan term the better. This will not only ensure that you pay less interest but it will also result in the repayment of the debt earlier. You’ll also have extra cash every month to use towards other expenses and debts. If you’re not capable of paying a greater monthly payment, you could choose to take a longer repayment term at the start and when your budget is able to allow. If your lender doesn’t have a prepayment charge You can also make the payment on your loan in advance and save on interest. When you are considering the length of the term take your current financial situation along with your needs and long-term goals in your mind. There’s no auto loan length that is ideal for everyone. Understanding your financial situation can help you determine the most effective path to take. In the end, although you’ll pay less monthly for an 84-month auto loan, you’ll ultimately pay more interest. You also risk paying more for the loan than the car is worth, and possibly large repair bills. When deciding on a longer auto loan time frame, consider a shorter term to save more overall. Find out more
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Written by Contributing writer Ben Luthi is a personal travel and finance writer who loves helping people learn how to live their lives more completely. His work has appeared in numerous 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 committed to helping readers gain the confidence to control their finances through providing precise, well-researched and well-researched details that cut complex subjects into bite-sized pieces.
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