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Auto loans typically have terms ranging from 24 months to 84 months, or two to seven years, which determine your monthly payment amount and interest charges. With a shorter-term loan, you’ll pay more per month, but owe less interest over the life of the loan. Longer-term loans, such as an 84-month auto loan, offer smaller monthly payments that incur higher interest charges.
While the majority of car loan borrowers take out 60-month or five-year loans, the best term for you is one you can afford. For example, if you need a car but can only afford small monthly payments, an 84-month auto loan might be right for you. Before taking out a longer-term loan, like an 84-month car loan, understand how it works to decide if it’s right for you.
What is an 84 month car loan?
An 84 month auto loan is a seven year loan. While three- and five-year auto loans were the most common for buyers in previous years, there is an upward trend in long-term auto financing. For example, in 2019, over 18% of loan terms were 84 months or longer – that figure rose to nearly 21% in 2020, and is now over 22%.
How an 84 month car loan works
When you take out a car loan, you have a set time to pay it back, including interest and fees. An 84-month car loan means you pay the same fixed interest rate and the same monthly payment for 84 consecutive months. Some borrowers may want to prepay their loan; however, lenders sometimes charge a prepayment penalty, so be sure to check with your lender before doing so.
When an 84 month car loan is a good option
An 84 month loan is a good idea if you:
- Need a car immediately. If you need a car right away, you may not have the cash to make a large down payment that translates into affordable monthly payments on a shorter-term loan. Longer loan terms, and therefore smaller monthly payments, could be the difference between buying a car and not.
- Cannot afford larger payments. Many dealerships have little or no down payment requirements, but this means larger monthly payments on a shorter term loan. If you don’t think you can make larger monthly payments with shorter terms, consider an 84-month loan.
- Have other monthly debts to repay. Longer loan terms mean lower monthly payments, giving you the flexibility to pay off other debts at the same time. You might have credit card bills, medical bills, or other outstanding debts that also need your attention.
Disadvantages of an 84 month car loan
There are downsides to an 84 month car loan, including:
- Pay more interest. The longer your loan term, the more interest you will pay over the loan term compared to shorter loan terms, even if you have the same interest rate.
- Become upside down on the car. By the time the seventh year arrives, your car will have depreciated significantly. If you want to trade it in for a new car or even sell it privately, you’ll get a lot less than you originally paid.
- Repair maintenance. Some older cars need more attention than others. You may need major repairs on a car that you are still paying for more than five years after you bought it. It’s easier to justify maintenance repairs on older cars that you own for free.
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Choose long-term or short-term auto loans
Shorter terms mean higher monthly payments. But the sooner you pay off your car, the sooner you will own it. If you can afford a car loan shorter than 84 months, you should.
Here’s how the total interest paid and monthly payment for a $25,000 car with a 3% interest rate and no down payment fluctuate with the term of the loan.
In this example, an 84 month loan shows $1,575 more in interest than a 36 month loan. Longer loan terms make sense if you need to keep your payments low enough to afford them. But remember how much extra interest you’ll pay if you opt for longer terms.
Alternatives to an 84 month loan
If you can’t afford shorter loan terms and/or don’t want to take out an 84-month loan, consider:
- Save for a big down payment. The larger your down payment, the lower your monthly payments. It’s not always easy or feasible to afford large monthly payments, so the more you save up front for a down payment, the less you’ll need to repay each month.
- Find a cheaper car. It is important to use your budget as a guide. You can have a maximum monthly payment, but staying below it is always a good decision if possible. Instead, find a cheaper car that meets all your needs. You can take out a smaller loan and possibly afford shorter repayment terms.
- Rent instead of buy. Leases are short-term, typically 24 to 48 months, and usually have little or no down payments. Payments are usually lower because they’re based on the depreciation of the car as you drive it, not the purchase price.