Do you need to take out an auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive tools and financial calculators, publishing original and objective content, by enabling users to conduct studies and compare data for free - so that you can make financial decisions with confidence. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that compensate us. This compensation could affect how and where products appear on this website, for example such things as the order in which they may appear in the listing categories in the event that they are not permitted by law. This applies to our mortgage and home equity products, as well as other products for home loans. But this compensation does have no impact on the information we publish, or the reviews that you read on this site. We do not cover the vast array of companies or financial offerings that could be open to you. SHARE: Standret/Shutterstock
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 understand how to live their lives more completely. His work has appeared in several 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 writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to take control of their finances through providing concise, well-studied information that breaks down complex topics into manageable bites. The Bankrate promise
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We are compensated in exchange for the placement of sponsored products andservices or by you clicking on certain links posted on our website. So, this compensation can impact how, where and when products appear within listing categories and categories, unless it is prohibited by law. We also offer mortgage, home equity, and other products for home loans. Other elements, such as our own rules for our website and whether the product is offered in the area you reside in or is within your own personal credit score could also affect the way and place products are listed on this site. Although we try to offer a wide range offers, Bankrate does not include details about every credit or financial products or services. The longer terms will mean lower monthly installments on an auto loan. They may offer some advantages for the right buyer -however, be prepared to pay more in the end. Before you choose for an 84-month term, understand the trade-offs and alternatives. What's an auto loan? Essentially, they're exactly the same as any auto loan. A auto loan will extend the period of repayment to seven years. Your lender will amortize your loan over the course of this time to determine the amount you pay each month in interest and principal. Consider, for instance, a $20,000 auto loan with an 3.49 percent rate of interest. If you choose to go for a 60-month payment term, your monthly payment will be around $364. You can extend the time to 84 months though, and your monthly payments would decrease to $269. But that 60-month term will only cost you 1 825 dollars in interest. Because there's longer space for the interest rate to stack up, an 84-month period is more expensive. You'll wind up paying $2,571 - nearly $750 more. There are a few reasons to stay clear of the 84-month auto loans While a longer loan term means a lower monthly payment, it could be trouble in the future. Here are some potential pitfalls to watch out for that could cost you more. Although your monthly payments are lower when you have a longer term but the total interest will be more expensive. Whatever amount or little you can finance, you're going to pay more interest for a longer loan. It may not be enough to make a deal breaker when faced with a more affordable payments each month however it's money that could be used elsewhere. Not only that, 84-month car loan rates are generally more expensive because they are more risky for lenders. And that's if it's offered even at all. Depreciation On an average the new car could drop more than 10% of its value in the first month following your leave the lot, according to . The loss can be as high as 20 percent- or more -- within the first year, and 60 percent within the 5th year. With a lower monthly payment, you have an increased chance of . In the event that you wish to sell your vehicle or it is completely destroyed, you'll have to pay the extra cost out of your pocket. Repair issues The older the car is, the more expensive repairs are. With an 84-month term is a higher likelihood that you'll have to pay for repairs even though you're still making an ongoing monthly payment. If you have a tight budget and low emergency reserves, it could cause a huge pressure on your finances. Expiring warranty new cars that offer long warranties, but most are at least three years, or 36,000 miles. If you have an 84-month loan, you'll still being paying the balance of your car long after the warranty expires. Avoid a loan duration that is longer than the time frame of your car's warranty. If you're buying a there's a good chance you won't have any warranty issues to think about. This makes expected depreciation and average repair costs even more vital. So do not skimp on your research. Kelley Blue Book and Edmunds both have estimates on the total cost of ownership which go beyond the normal repairs which are covered under a warranty. Benefits of an 84-month car loan It's not all negatives and doom. There are a few advantages of the 84-month period that you should consider: Lower monthly payments. Seven years is an extended period which means you are able to take out more loans and still have a relatively affordable monthly cost. If you have limited funds the 84-month period could aid in keeping monthly costs low. Lower debt-to-income ratio. With an 84-month car loan and monthly payments, your expenses will be less than your earnings. And a low may help you qualify for future loans. Rates that are competitive. When interest rates are at a low, it can make sense to borrow money as long as possible. You could use the savings to pay off more expensive debt. Make sure you know that the 84-month auto loans will have higher rates over automobile loans with shorter durations. When to consider an car loan There are times when you are on a tight budget or haven't got a lot of room to negotiate with a dealer. If you are limited in the options available, a long-term auto loan may be the best choice. A longer term is the only way to incorporate regular payments into your budget. There's no penalty in the event that you pay off your car loan is paid off in the early. The term length lets you afford a better, more reliable vehicle. Your car has a long warranty, minimizing overall repair costs. You could be eligible for a low-interest rate, and you'll want to invest the difference to earn an increase in the value of your investment. Other auto loan options Use an to get an idea of what a longer term costs. If you're not certain if that a longer-term loan is the right one for you, even with the best 84-month option, there are other options to think about: Wait and save. If you're stuck on an exact model but are unable to be able to afford the long-term you should think about waiting until you have enough cash to make a bigger down cost. Utilize an 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 up for a bigger down payment, you might want to change your priorities towards a more affordable vehicle that allows you to finance for a shorter term. Find room for savings in the budget. If you haven't already, take a look at your earnings and expenses in the past few months and determine whether there are areas in which you could cut back on your spending to allow for an increased monthly payment. Buy instead of leasing. They have lower time frames than auto loans on average about three years according to . Despite having a shorter duration, they have lower monthly costs due to the depreciation of the vehicle, not on the sale price. How to choose an auto loan term length Consider your loan amount, the interest rate along with your spending plan. It's not uncommon for 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 beneficial. It's not just a way to ensure that you pay lower interest, but it also results in you paying off the debt sooner. This means that you'll have extra cash every month to put toward other debts and expenses. If you won't be able to afford a higher monthly installment, you can opt for a longer repayment term in the beginning and later when your budget is able to allow. If your lender doesn't charge a prepayment cost, 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, needs and long-term goals in mind. There isn't a loan length that's ideal for everyone. Understanding your finances will 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 however, you'll end up paying more in interest. You also risk owing more on the loan than the vehicle is worth, and possibly huge repair costs. If you are considering a long auto loan time frame, consider the shorter duration to save money in the long run. Learn 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 life fully. His writing has been featured in a variety of publications such as U.S. News & World Report, USA Today, Yahoo! Finance and more. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to take control of their finances by providing concise, well-studied facts that break down otherwise complex subjects into bite-sized pieces.
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