An 84-month auto loan might suit certain drivers, but choosing a longer-term loan can lead to higher expenses compared to a shorter-term option. Typically, it implies that an 84-month auto loan can reduce monthly payments compared to shorter-term loan options.
Moreover, while it may seem appealing due to its low monthly payments, it’s essential to recognize the significant financial expenses. Despite paying a higher total amount compared to shorter-term loans, there are circumstances where choosing this loan could be reasonable. However, before securing to an 84-month auto loan, it’s essential to comprehend the advantages and disadvantages of this choice.
What Is An 84-Month Auto Loan
An 84-month auto loan is a type of loan that extends over seven years and operates similarly to other auto loans. When purchasing a new or used vehicle, you can secure financing through a loan that you repay over these 84 months, alongside interest. Moreover, the amount of interest paid on the loan depends on various factors like the lending institution, your credit score, the vehicle’s value, and your income.
Typically, 84-month loans are not commonly compared to shorter-term options like 36- or 48-month loans. While shorter-term loans have higher monthly payments, their shorter duration results in lower interest payments over time. Furthermore, choosing for an 84-month loan allows you to extend your payments over an extended time frame. This makes the monthly payment more manageable but the expense of the interest can accumulate significantly, leading to higher expenses for drivers.
Advantages of An 84-Month Auto Loan
Although 84-month auto loans are not the most financially right choice, there are specific events in which they could be advantageous. Here are a few of the reasons:
Lower Monthly Payments
Purchasing an 84-month auto loan can reduce your monthly car payments in comparison to shorter-term loans, such as those spanning three or five years. This flexibility can enable you to afford a vehicle that might otherwise exceed your budget.
Higher Loan Amount
In certain cases, a longer-term loan can secure a good vehicle without unexpected issues. Additionally, a new or certified pre-owned car may have a higher price tag. However, an 84-month loan can make the higher cost affordable by starching out payments over an extended period.
Early Payoff
Numerous lenders offer early payoff for your car loan without imposing extra fees. You can make larger payments over the loan period if it’s permitted, minimizing the interest expenses associated with taking the full seven years to repay the loan.
Moreover, if you find yourself in some financial difficulties, you have the option to revert to making minimum payments on the loan. Generally, it’s essential to review the terms and conditions before agreeing to a loan. If the terms allow for an early payoff, then choosing an 84-month loan is a nice choice.
Disadvantages of An 84-Month Auto Loan
It’s advisable to note that longer durations for auto loans should be avoided whenever any alternatives exist. Here are a few reasons why an 84-month loan might not be the most suitable option for you:
More Expensive
Although extending the term of your auto loan can lower monthly payments but can lead to a higher total interest. Regardless of the loan amount, choosing for a longer term has to pay more in interest.
Additionally, it’s essential to recognize that the money spent on interest could be allocated elsewhere if been a deal breaker when experiencing a cheap monthly payment is insufficient. Furthermore, 84-month car loan rates often come with higher interest rates due to the increased risk associated with longer terms for lenders.
Depreciation
According to Carfax, a new car can depreciate by over 10 percent of its value within the first month after purchase. Within the initial year, depreciation can exceed 20 percent, and by the fifth year, it may reach up to 60 percent. However, choosing for minimal monthly payments with an extended loan term can increase the risk of owing more than the car’s worth. Moreover, if you intend to sell the vehicle, you could find yourself responsible for covering the variation out of pocket.
Repair Issues
As cars age, repair costs typically increase. Choosing an 84-month loan term increases the chance of significant repair expenses while you’re still making monthly payments. However, this situation can strain your budget, if you have limited emergency funds and a tight financial situation.
Expired Warranty
There are certain new cars come with extended warranties, but the majority offer coverage for three years or up to 36,000 miles. Choosing an 84-month loan term will pay off after the warranty period has expired. However, it’s advisable to avoid auto loan terms that surpass the duration of your car’s warranty to avoid potential financial risks associated with uncovered repairs.
When To Choose An 84-Month Auto Loan
In situations where your budget is tight or you face limited negotiation leverage with car dealers, choosing a long-term auto loan may be the best option available.
- Choosing a longer loan term becomes necessary to align monthly payments with your budget constraints.
- There are no penalties for early repayment of the auto loan.
- The extended term allows you to afford a higher-quality, more dependable vehicle.
- Your car is covered by a lengthy warranty, reducing the overall repair expenses.
- You can qualify for a minimal interest rate and aim to invest funds for a potentially higher return on your investment.
An 84-month loan offers a benefit by enabling the acquisition of a vehicle meant for extended ownership, thus supporting long-term investment in a car.
When To Avoid An 84-Month Auto Loan
Choosing an 84-month car loan isn’t typically the most favorable option for most drivers. Here are situations when it’s best to avoid this type of loan:
- You can easily afford a shorter loan term.
- You can anticipate potential repair issues due to the vehicle’s age or condition.
- You may find it difficult to justify the higher interest rates.
In addition, it’s right to obtain quotes for various car loan lengths by evaluating the risks associated with negative equity and long-term expenses.
In many situations, securing for an 84-month car loan isn’t the right choice. However, it can result in lower monthly payments, as the cost tends to be higher due to accumulated interest fees over time. An 84-month car loan could be justified, particularly if you require a good vehicle and lack the time to save or expand your budget. Regardless of your decision, it’s essential to carefully consider the advantages and disadvantages to determine whether a long-term loan is best for you.