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Should you take an 84-month auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering interactive financial calculators and tools, publishing original and objective content. We also allow users to conduct studies and compare data for free to help you make sound financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies who pay us. This compensation can affect the way and when products are featured on this site, including such things as the order in which they may appear in the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other products for home loans. But this compensation does have no impact on the content we publish or the reviews that you see on this site. We do not include the vast array of companies or financial deals that might be open to you. SHARE: Standret/Shutterstock
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 loves helping people understand how to live their lives more fully. His work has been published in a variety of publications that include U.S. News & World Report, USA Today, Yahoo! Finance and more. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to manage their finances through providing concise, well-studied information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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Therefore, this compensation may influence the manner, place and when products are listed and categories, unless it is prohibited by law. This is the case for our credit, mortgage, and other products for home loans. Other elements, such as our own proprietary website rules and whether the product is available in your region or within your self-selected credit score range could also affect how and when products appear on this site. We strive to provide the most diverse selection of products, Bankrate does not include specific information on every financial or credit item or product. More time-bound terms translate to lower monthly payments on an auto loan. They may offer some advantages for the right buyerhowever, you should expect to pay more overall. Therefore, before you decide for an 84-month loan consider the tradeoffs and alternatives. What is an 84-month auto loan? Essentially, they’re the same as any auto loan. An 84-month auto loan will extend the period of repayment to seven years. The lender will amortize your loan over this term to determine the amount you pay each month in interest and principal. For instance, let’s consider an auto loan with an 3.49 per cent interest. If you were to opt for a 60-month payment term the monthly amount is $364. You can extend the term to 84 months, though, and your monthly payments would decrease to $269. The 60-month option will cost you just $1,825 in interest. As there’s more time for interest to stack up, an 84-month period is naturally more expensive: You’ll end up paying $2,571 – almost $750 more. There are a few reasons to stay clear of 84-month auto loans Although a longer auto loan term means a lower monthly payment but it can be a problem in the future. There are a few potential traps to be aware of: More expensive While your monthly payments will be lower with the length of the loan, the total interest charged will be higher. No matter how much or little you can finance, you’re going to pay more interest on the longer loan. It may not be enough to be an issue when you’re faced with a lower monthly installments each month however, this is money that could be spent elsewhere. Not only that the 84-month loan rates are generally more expensive because they are more risky for lenders. That’s even if you’re offered the option in any way. Depreciation On an average, a new car can drop more than 10% of its value in the first month after you take it off the dealership according to . The loss can be as high as 20 percent- or more — during the first year and 60 percent within the 5th year. If you pay a smaller monthly amount and a higher chance of . If you decide to sell your car or have it damaged, you’ll have to pay the difference out of pocket. Repair problems The older the vehicle is, the more expensive repairs will be. If you have an 84-month contract is a higher likelihood that you’ll have to shell out for while you still have the monthly installment. If you have an extremely tight budget and a lack of emergency reserves, it could be a major pressure on your finances. Expiring warranty new vehicles with lengthy warranties, but most are 3-year or more, with 36,000 miles. If you have an 84-month loan, you’ll still be paying for your car long after the warranty ends. Try to avoid an auto loan duration that is longer than the duration of your vehicle’s warranty. If you’re getting a , you likely won’t have any warranty issues to worry about. This makes the expected depreciation and repair costs average more vital. So make sure you do your homework. Kelley Blue Book and Edmunds both offer estimates on the total cost of ownership that are higher than the general repair costs covered by a warranty. Benefits of an 84-month car loan There isn’t all negatives and doom. There are some benefits of the 84-month period that you should take into consideration: lower monthly payments. Seven years is a long period and you could take out more loans and still have a relatively affordable monthly cost. If you’re working on limited funds the 84-month period could help keep month-to-month costs down. Lower debt-to-income ratio. If you take out an 84-month auto loan and monthly payments, your expenses will be lower compared to your income. And a low may make it easier to qualify in the future for loans. Rates that are competitive. When interest rates are at a low, it can make sense to borrow funds for as long as possible. It is possible to use the money to cover higher-interest loans. Just know that the 84-month auto loans will carry higher interest rates than automobile loans with shorter terms. Consider an 84-month car loan There are circumstances where you are on a tight budget or don’t have much room to negotiate with a dealer. If you are limited in the options to choose from, a long-term auto loan might be the best alternative. A longer-term loan is the only option to make the monthly installments within your budget. There’s no penalty for in the event that the car loan is paid off early. The duration of the loan allows you to purchase a better, more reliable vehicle. Your car has a long warranty, minimizing overall repair costs. You can be eligible for a low-interest rate and would like to invest the difference for more return on your investment. Other auto loan alternatives Use it to get an idea of what a long-term contract will cost you. If you’re not sure that a longer-term loan is the right one for you — even with the most favorable 84-month — there are alternatives to consider: wait and save. If you’re stuck with a specific model but can’t afford it without a long-term look into waiting until you’ve accumulated enough cash to pay for a larger down amount. Utilize an auto loan to find out the amount it could lower your monthly payments. Opt for a cheaper car. If you’re not able to save for a larger down payment, consider changing your expectations to a lower-cost vehicle that allows you to finance it for a shorter time. Look for a place in your budget. If you haven’t already taken a look at your income and expenses over the last few months to determine whether there are areas in which you can cut back in order to accommodate an increased monthly payment. Lease instead of buying. Have shorter time frames than auto loans in general approximately three years, as per . Despite having a shorter duration however, they are able to pay lower monthly costs because they’re based on the depreciation of the vehicle, not on the sale price. How to choose an auto loan term length ? Consider your loan amount along with 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 giving in to pressure from sales. The shorter you can get your auto loan time frame, the more advantageous. This will not only guarantee you pay less interest but it can also result in paying off the debt sooner. You’ll also have extra cash every month to pay for other obligations and expenses. If you’re not able to afford a higher monthly payment, you can opt for longer repayment terms starting at the beginning, and then when your budget allows. If you’re lender does not charge a prepayment fee You can also pay off your loan in advance and save on interest. When you are considering the length of the term be sure to keep your current circumstances along with your needs and long-term goals in your mind. There isn’t a loan length that works best for every person, therefore understanding your financial situation can help you discover the best route to take. In the end, even though you’ll have smaller monthly payments when you take out an 84-month car loan, you’ll ultimately pay more in interest. Additionally, you’ll be liable for paying more for the loan than your car is worth and potentially massive repair costs. If you are considering a long auto loan term, consider an earlier term to save more overall. Find out more
Written by Contributing writer Ben Luthi is a personal finance and travel writer who enjoys helping people understand how to live their lives more fully. His writing has been featured in numerous publications such as 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 editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.
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