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Car loans usually have terms ranging from 24 months to 84 months — or two to seven years — that determine the size of your monthly payment and interest. With a short term loan, you will pay more per month, but owe less interest during the loan. Longer term loans, such as an 84-month auto loan, offer lower monthly payments that result in more interest charges.
While the majority of car loan borrowers take out 60-month or five-year loans, the best term for you is one that you can afford. For example, if you need a car but can afford to pay lower monthly payments, an 84-month car loan might be right for you. Before getting a longer-term loan, such as an 84-month car loan, understand how it works to decide if it is right for you.
What is an 84 month car loan?
An 84-month car loan is a seven-year loan. While three- and five-year car loans have been more common for buyers in recent years, there is a growing trend of long-term car financing. For example, in 2019, more than 18% of loan terms were for 84 months or more – this percentage increased to almost 21% in 2020 and is now over 22%.
How an 84 month car loan works
When you take out a car loan, you are given a fixed amount of time to repay it, including interest and commissions. An 84-month car loan means you pay the same fixed interest rate and monthly payment for 84 consecutive months. Some borrowers may want to repay their loan earlier. However, sometimes lenders charge a prepayment fine, so be sure to contact your lender before you do.
When an 84 month car loan is a good choice
An 84 month loan is a good idea if:
- You need a car right away. If you need a car right away, you may not have the cash to bring in a large down payment leading to affordable monthly payments on a short-term loan. Higher loan terms, and therefore lower monthly payments, can be the difference between buying a car and not.
- I can not afford bigger payments. Many agencies have minimal to no down payment requirements, but that means higher monthly payments on short-term loans. If you do not think you can handle larger monthly payments on smaller terms, consider an 84 month loan.
- You have another monthly debt to pay off. Higher loan terms mean lower monthly payments, giving you the opportunity to repay other debts at the same time. You may have outstanding credit card bills, medical bills or other debt that also need your attention.
Disadvantages of an 84 month car loan
There are disadvantages to an 84-month car loan, such as:
- Paying more interest. The higher the term of your loan, the more you will pay interest over the life of the loan compared to lower loan terms, even if you have the same interest rate.
- I turn upside down in the car. By the age of seven, your car would have been significantly undervalued. If you want to exchange it for a new car or even sell it privately, you will receive much less than you originally paid for it.
- Repair maintenance. Some older cars need more attention than others. There is a possibility that you will need extensive repairs to a car that you still pay for more than five years after purchase. It is easier to justify maintenance repairs on older cars that you have for free and clean.
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Choice of long-term versus short-term car loans
Lower terms mean higher monthly payments. But the sooner you pay for your car, the faster you will get it completely. If you can afford a car loan of less than 84 months, you should do it.
See how the total interest paid and the monthly payment for a car $ 25,000 with a 3% interest rate and no down payment varies depending on the duration of the loan.
In this example, an 84-month loan shows $ 1,575 more in interest compared to 36 months. Higher loan terms make sense if you need to keep your payments low enough to be able to afford it. But remember how much more you will pay in interest if you choose a longer term.
Alternatives for an 84 month loan
If you can not afford lower loan terms and / or do not want to take out an 84-month loan, consider:
- Saving for a large down payment. The higher your down payment, the lower your monthly payments. It is not always easy or affordable to afford large monthly payments, so the more you save in advance for a down payment, the less you will have to pay each month.
- Finding a cheaper car. It is important to use your budget as a guide. You may have a maximum monthly payment, but staying below that is always a good move if possible. Instead, divert your thinking to good things in life. You can get a smaller loan and possibly afford lower repayment terms.
- Lease instead of purchase. Leases are short-term, usually from 24 to 48 months, and usually have small or non-existent advances. Payments are usually lower because they are based on the depreciation of the car as you drive and not the purchase price.