Should you take an 84-month auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering you interactive financial calculators and financial tools, publishing original and objective content. We also allow users to conduct research and compare information for free - so that you can make sound financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this website, for example such things as the order in which they be listed within the categories of listing, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews you see on this site. We do not include the universe of companies or financial offers that may be accessible to you. SHARE: Standret/Shutterstock
5 min read published March 02, 2023
Ben Luthi Ben Luthi Written by Contributing writer Ben Luthi is a personal finance and travel writer who loves helping people discover how to live their lives more completely. His writing has been featured in a variety of publications, including U.S. News & World Report, USA Today, Yahoo! Finance, and many other publications. Edited 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 the confidence to take control of their finances through providing precise, well-studied and well-documented information that breaks down complicated topics into bite-sized pieces. The Bankrate promises
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We are compensated in exchange for placement of sponsored products and, services, or through you clicking certain links posted on our website. This compensation could affect the way, location and when products appear within listing categories in the event that they are not permitted by law. This is the case for our loan products, such as mortgages and home equity and other home loan products. Other factors, such as our own rules for our website and whether the product is offered in your area or at your own personal credit score may also influence how and where products appear on this site. We strive to provide the most diverse selection of products, Bankrate does not include details about every financial or credit item or product. The longer terms will mean lower monthly installments on your auto loan. They can have some benefits for the right buyer- but you should expect to pay more overall. So, before you opt for an 84-month contract consider the tradeoffs and other options. What is an auto loan? They're basically the same as any auto loan. A auto loan extends the repayment time to seven years. The lender is able to amortize the loan over this term to determine how much you pay each month in principal and interest. Consider, for instance, an auto loan with a 3.49 percent interest rate. If you were to opt for a 60-month term to repay, your monthly payment will be around $364. You can extend the term to 84 months, but your monthly installment would fall to $269. However, that 60-month period will only cost you the sum of $1,825 for interest. As there's more than enough time to allow interest rates to pile up, an 84 month term will be more costly: You'll wind up paying $2,571 -- almost $750 more. The reasons not to take the 84-month term of auto loans Although a longer auto loan term means a lower monthly payment however, it could cause problems later on. Here are some possible pitfalls to be aware of: More expensive While your monthly payments are lower when you have an extended term but the total interest will be more expensive. However much or little you can finance the loan, you'll be paying more interest on a longer loan. It might not suffice to be an issue when you're faced with a lower monthly payment every month however it's money that could be put to use elsewhere. Not only that, 84-month car loan rates tend to be higher because longer terms are more risky for lenders. That's even if it's offered even at all. Depreciation On the average, a new car can lose more than 10 percent of its value in the first month following your take it off the dealership as per . The loss can be as high as 20 percent- or more -- during the first year and up to 60 percent in the fifth year. If you pay a smaller monthly amount, you have an increased risk . If you decide to sell the vehicle or have it damaged, you'll have to pay the extra cost out of pocket. Repair issues : The older the car is, the more expensive the repairs are. With an 84-month term, there's a much higher likelihood that you'll have to shell out for even though you're still making a monthly payment. If you're working with an extremely tight budget and a lack of reserve, it can put a big pressure on your finances. Expiring warranty new vehicles that come with long warranties, but most are at least three years, or 36,000 miles. If you have an 84-month loan you'll being paying the balance of your car even after the warranty ends. Avoid a loan period that exceeds the duration of your vehicle's warranty. If you're purchasing a there's a good chance you won't have a warranty to worry about. This makes depreciation expected and repair costs average more important -- so do not skimp on your research. Kelley Blue Book and Edmunds both have estimates on the total cost of ownership that are higher than the general repair costs that are covered by a warranty. Benefits of an 84-month auto loan There isn't all negatives and doom. There are some benefits of an 84-month term you should consider: Lower monthly payments. Seven years is a long time and you could borrow more money , and enjoy a fairly small monthly expense. If you're on a tight budget 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 income. Also, a lower rate can allow you to be more eligible for future loans. Competitive rates. If interest rates are low it is logical to borrow money as long as possible. It is possible to use the funds to repay your higher-interest debt. Make sure you know that the 84-month auto loans will carry higher interest rates than loans with shorter terms. loans with shorter terms. When to consider an 84-month car loan There are circumstances where you have a tight budget or haven't got a lot of room to negotiate with a dealer. If you're faced with a limited selection to choose from, a long-term auto loan might be the best alternative. A longer-term loan is the only way to fit monthly payments within your budget. There's no penalty when an auto loan is paid off in the early. The duration of the loan lets you afford the most reliable, higher quality vehicle. Your car has a long warranty, minimizing total repair costs. You could qualify for a low interest rate and would like to invest the difference to earn an increase in the value of your money. Other auto loan options You can use an auto loan to get an idea of the amount a longer-term loan costs. If you're not sure a longer term is right for you -- even with the best 84-month option, there are other options to consider: wait and save. If you're stuck on an exact model but are unable to be able to afford the longer term look into waiting until you've accumulated enough cash to pay for a larger down cost. Use the auto loan to determine the extent to which it will reduce your monthly payment. Opt for a cheaper car. If you don't have time to save up for a bigger down payment, you might want to change your expectations to a less expensive car that lets you finance it for a shorter time. Make room for savings in the budget. If you don't have it looked at your income and expenses over the last few months and determine if there are areas where you can reduce your expenses in order to accommodate a higher monthly payment. Lease instead of buying. Have shorter time frames than auto loans in general approximately three years, according to . Despite having a shorter duration however, they are able to pay lower monthly installments because they're based on the vehicle's depreciation and not the price it was sold for. How to choose the right auto loan term length Consider your loan amount as well as the interest rate along with your spending plan. It's not unusual for car buyers to opt for longer terms on their auto loans, but it's certainly not worth compromising to the pressure of sales. The shorter you can get your auto loan duration, the more advantageous. It's not just a way to guarantee that you pay less interest but it will also result in paying off the loan sooner. You'll also have extra money each month to put toward other obligations and expenses. If you aren't capable of paying a greater monthly payment, you can opt for an extended repayment period starting at the beginning, and then when your budget is able to allow. If you're lender doesn't charge a prepayment cost, you can also make the payment on your loan early and save money on interest. As you consider term lengths, keep your current situation along with your needs and long-term goals in mind. There isn't a loan length that's ideal for everyone, so understanding your financial situation can help you find the best path forward. In the end, although you'll have smaller monthly payments with an 84-month car loan however, you'll end up paying more interest. Additionally, you'll be liable for paying more for the loan than the car is worth, and possibly huge repair costs. If you are considering a long auto loan term, consider an earlier term to save money overall. Learn more
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Written by a contributing writer Ben Luthi is a personal travel and finance writer who is passionate about helping others learn how to live life more fully. His work has appeared in a variety of publications that include U.S. News & World Report, USA Today, Yahoo! Finance and many more. The article was 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 confidence to control their finances by providing concise, well-studied details that cut otherwise complicated topics into digestible pieces.
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