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5 min read Published March 02, 2023.
Written by Ben Luthi Written by Contributing writer Ben Luthi is a personal finance and travel writer who enjoys helping others learn how to live life more fully. His writing has been featured in a variety of publications, including U.S. News & World Report, USA Today, Yahoo! Finance and more. Written 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 take control of their finances with concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promises
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So, this compensation can impact how, where and when products are listed in the event that they are not permitted by law. This is the case for our credit, mortgage and other home loan products. Other elements, such as our own proprietary website rules and whether or not a product is offered in your region or within your own personal credit score can also impact how and where products appear on this site. We strive to provide an array of offers, Bankrate does not include details about every financial or credit products or services. Longer terms mean lower monthly installments on an auto loan. They could be beneficial for the right buyerhowever, you should you should expect to pay more overall. Therefore, before you decide for an 84-month term be aware of the trade-offs and alternatives. What exactly is an 84-month auto loan? They’re basically exactly the same as any auto loan. An 84-month auto loan extends the repayment time by seven years. The lender amortizes the loan over this term to determine the amount you pay each month in interest and principal. Consider, for instance, an auto loan with an 3.49 percent rate of interest. If you were to opt for a 60-month term to repay, your monthly payment is $364. Extend that time to 84 months but your monthly payment would drop to $269. The 60-month option will only cost you $1,825 in interest. Since there’s more than enough time to allow interest rates to stack up, an 84-month term is naturally more expensive: It will cost you $2,571 or approximately $750 more. The reasons not to take the 84-month auto loans Although a longer auto loan period means lower monthly payments, it could be trouble in the future. Here are some possible pitfalls to avoid more expensive Although your monthly payments are lower when you have the length of the loan but the total interest will be higher. No matter how much or how little you finance it, you’ll pay more interest on the longer loan. It might not be enough to make an issue when you’re confronted with a lower monthly payment every month however, it’s money that could be used elsewhere. Additionally the 84-month auto loan rates tend to be higher because longer terms are more risky for lenders. That’s even if the option is offered at all. Depreciation On an average an automobile that is brand new can be able to lose more than 10 percent of its value in the first month following your take it off the dealership according to . The loss can be as high as 20 percentor more during the first year and 60 percent in the fifth year. With a lower monthly payment and a higher risk . If you decide to sell the vehicle or it gets completely destroyed, you’ll have to pay the difference out of your pocket. Repair issues The older the car is, the more expensive the repairs will be. With an 84-month term it’s more likely that you’ll have a greater chance of having to spend money on repairs while you still have a monthly payment. If you have limited funds and no reserves for emergencies, it could put a big strain on your budget. Warranty expiration There are a few new vehicles that come with long warranties, but most are 3-year or more, with 36,000 miles. If you have an 84-month loan, you’ll still being paying the balance of your vehicle long until the warranty is over. Avoid a loan term that exceeds the length of your car’s warranty. If you’re purchasing a you likely won’t have a warranty to think about. This makes the expected depreciation and repair costs average more important — so make sure you do your homework. Kelley Blue Book and Edmunds both offer estimates on the total cost to own which go beyond the normal repairs that are covered by the warranty. Benefits of an auto loan It’s not all negatives and doom. There are some advantages to an 84-month loan that you must consider: Lower monthly payments. Seven years is an extended period — you can borrow more money , and pay a small monthly expense. If you have a tight budget and a 84-month contract could 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 lower compared to your income. Also, a lower rate can help you qualify in the future for loans. Competitive rates. When interest rates are at a low, it can make sense to borrow money as long as is possible. It is possible to use the money to cover higher-interest loans. Make sure you know that 84-month auto loans will have higher rates over automobile loans with shorter durations. Consider an auto loan There are times when you have a tight budget or haven’t got plenty of time to negotiate with a dealer. If you are limited in the options available, a long-term auto loan could be the most suitable choice. A longer term is the only way to incorporate monthly payments into your budget. There is no penalty in the event that an car loan is paid off early. The term length enables you to afford a better, more reliable automobile. Your car has a long warranty, which reduces total repair costs. You may qualify for a low interest rate and would like to put the money into a better return on your money. Other auto loan alternatives Use it to get an idea of the amount a longer-term loan will cost you. If you’re not certain if a longer term is right for you, even with the most favorable 84-month — there are other options to consider: Wait and save. If you’re stuck with an exact model but are unable to pay for it with a more long-term, consider waiting to accumulate enough cash to make a bigger down amount. Utilize an auto loan to determine the extent to which it will lower your monthly payments. Opt for a cheaper car. If you don’t have time to save enough for a larger down payment, consider changing your expectations to a lower-cost car that lets you finance for a shorter term. Look for a place in your budget. If you haven’t done so looked at your income and expenses for the last few months to determine whether there are areas in which you can cut back in order to accommodate an increased monthly payment. Buy instead of leasing. have shorter times than auto loans on average — roughly three years according to . Despite having a shorter duration they offer lower monthly installments due to the depreciation of the vehicle, not on the sale price. How do you choose an auto loan term length Consider your loan amount, the interest rate along with your spending plan. It’s not unusual for car customers to select more lengthy terms for their auto loans however it’s not a good idea to give in to pressure from sales. The shorter you can get your auto loan time frame, the more advantageous. Not only does it guarantee you pay less interest, but it can also result in paying off the debt earlier. This means that you’ll have extra cash every month to put toward other debts and expenses. If you won’t be in a position to pay for a larger monthly payment, you could choose to take an extended repayment period in the beginning and later as your budget permits. If you’re lender doesn’t charge a prepayment fee You can also take care to pay back your loan early and save money on interest. When you think about the length of your 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 works best for everyone, so understanding your finances will help you find the best path forward. The bottom line Although you’ll pay less monthly when you take out an 84-month car loan however, you’ll end up paying more in interest. There’s also the risk of owing more on the loan than your car is worth, and possibly massive repair costs. If you are considering a long auto loan duration, think about an earlier term to save more overall. Learn more
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Written by Contributing writer Ben Luthi is a personal travel and finance writer who enjoys helping people understand how to live life fully. His work has appeared in several publications such as U.S. News & World Report, USA Today, Yahoo! Finance, and many more. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances by providing clear, well-researched details that cut complicated topics into digestible pieces.
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