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5 minutes read Read March 02, 2023.
Ben Luthi 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 fully. His work has appeared in a variety of 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 the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances with precise, well-studied and well-documented facts that break down complex topics into manageable bites. The Bankrate guarantee
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We receive compensation for the placement of sponsored products or services, or through you clicking certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear in listing categories and categories, unless it is prohibited by law. This is the case for our mortgage, home equity and other home lending products. Other elements, such as our own rules for our website and whether the product is available within the area you reside in or is within your personal credit score can also impact the way and place products are listed on this website. While we strive to provide a wide range offers, Bankrate does not include details about every credit or financial item or product. The longer terms will mean lower monthly payments on an auto loan. They could be beneficial when you are the right buyerhowever, you should expect to pay more overall. Therefore, before you decide for an 84-month term consider the tradeoffs and alternatives. What's an auto loan? Essentially, they're exactly the same as any auto loan. An 84-month auto loan stretches the repayment period by seven years. Your lender amortizes your loan over the course of this time to determine the amount you'll pay each month in principal and interest. For instance, let's consider a $20,000 auto loan with an 3.49 percent rate of interest. If you opt for a 60-month repayment term, your monthly payment will be around $364. Extend that term to 84 months, but your monthly installment would fall to $269. The 60-month option would only cost you the sum of $1,825 for interest. Because there's longer than enough time to allow interest rates to stack up, an 84-month term will be more costly: You'll wind up paying $2,571 - nearly $750 more. Reasons to avoid the 84-month term of auto loans Even though a longer loan term means a lower monthly payment however, it could cause problems later on. Here are some potential pitfalls to avoid that could cost you more. Although your monthly payments are lower when you have an extended term, the total interest charged will be greater. However much or how little you borrow the loan, you'll be paying more interest for an extended loan. It may not be enough to make a deal breaker when faced with a lower monthly payments each month, but it's money that could be put to use elsewhere. Additionally the 84-month loan rates are generally more expensive because they are more risky for lenders. And that's if you're offered the option at all. Depreciation On the average the new car could lose more than 10% of its value in the first month after you take it off the dealership as per . The loss can be as high as 20 percentor more within the first year, and up to 60 percent within the 5th year. If you pay a smaller monthly amount and a higher risk of . If you decide to sell your vehicle or have it completely destroyed, you'll have to pay the extra cost out of pocket. Repair issues : The older the car is, the more expensive the repairs will be. With an 84-month loan is a higher likelihood that you'll have to pay for repairs while you still have a monthly payment. If you're on an extremely tight budget and a lack of emergency reserves, it could be a major strain on your budget. Expired warranty There are some new cars that offer long warranties, but they're usually three years or 36,000 miles. If you take out an 84-month loan, you'll still being paying the balance of your car even after the warranty ends. Try to avoid an auto loan term that exceeds the time frame 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 each have estimates of the total cost of ownership that are higher than the general repair costs that are covered by warranties. Benefits of an 84-month auto loan It's not all doom and gloom. There are some benefits of the 84-month period that you should look at: Lower monthly payment. Seven years is an extended period and you could borrow more money , and enjoy a fairly small monthly expense. If you're working on limited funds and a 84-month contract could aid in keeping monthly costs low. Lower debt-to-income ratio. With an 84-month car loan, your monthly payments will be lower compared to your earnings. Also, a lower rate can make it easier to qualify for future loans. Rates that are competitive. When interest rates are at a low it's logical to borrow funds for as long as possible. You can use your added funds to repay more expensive loans. Be aware that 84-month auto loans are more expensive over loans with shorter terms. loans with shorter durations. Consider an auto loan There are circumstances where you have a tight budget or don't have plenty of time to negotiate with your car dealer. When you have limited choices to choose from, a long-term auto loan may be the best choice. A longer duration is the only way to incorporate regular payments within your budget. There is no penalty in the event that you pay off your car loan is paid off early. The term length allows you to purchase an improved, more reliable car. Your vehicle is covered by a lengthy warranty, minimizing overall repair costs. You could qualify for a low interest rate and want to invest the difference to earn more return on your money. Other auto loan options You can use an auto loan to understand the amount a longer-term loan will cost you. If you're not sure whether a longer period is suitable for you -- even with the best 84-month -- here are some alternatives to consider: Wait and save. If you're stuck with a specific model but can't pay for it with a longer term you should think about waiting until you have enough cash to make a bigger down payment. Utilize the auto loan to find out the amount it could cut your monthly installment. Opt for a cheaper car. If you aren't able to save enough for a larger down payment, consider changing your expectations towards a more affordable vehicle that allows you to finance for a shorter term. Find room in your budget. If you don't have it looked at your earnings and expenses over the last couple of months and see if there are areas where you could cut back on your spending in order to accommodate an increased monthly payment. Lease instead of buying. Have shorter terms than auto loans in general about three years, as per . Despite the shorter term they offer lower monthly installments because they're based on the car's depreciation, not its sales price. What should you consider when choosing an auto loan term length Consider what you're financing as well as the interest rate as well as your financial budget. It's not uncommon for car customers to select more lengthy terms for their auto loans, but it's certainly not a good idea to give in to sales pressure. The shorter you can get your auto loan term, the better. Not only does it guarantee that you pay lower interest, but it can also result in you paying off the loan sooner. This means that you'll have extra money each month to put toward other obligations and expenses. If you aren't capable of paying a greater monthly installment, you can opt for a longer repayment term in the beginning and later as your budget permits. If you're lender does not have a prepayment charge, you can also take care to pay back 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's no auto loan length that's ideal for everyone. Understanding your financial situation can help you discover the best route to take. In the end, even though you'll pay less monthly when you take out an 84-month car loan, you'll ultimately pay more interest. You also risk paying more for the loan than your car is worth, and possibly massive repair costs. When deciding on a longer auto loan term, consider a shorter term to save more overall. Learn more
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Written by a contributing writer Ben Luthi is a personal finance and travel writer who enjoys helping people understand how to live life more fully. His work has appeared in numerous publications, including 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 through providing clear, well-researched details that cut complicated topics into digestible pieces.
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