84-Month Auto Loan: Is It Worth It?

The length of the term for an auto loan can range anywhere from 24 months to 84 months, which translates to two years to seven years. The length of the term is what affects the sum of your monthly installment and the sum of interest you will be charged. 

If you take out a loan with a shorter term, your monthly settlements will be higher; but, the total sum of interest you will pay will be lower. Longer-term loans, such as auto loans with 84 months of repayment, have lower monthly settlements but result in higher overall interest costs.

The majority of people who take out vehicle loans choose terms of 60 months or five years; however, the optimum term for you is the one that is within your financial means. 

A car loan with 84 monthly installments could be ideal if you require a vehicle but can only make the minimum payment each month. 

Learn the ins and outs of a longer-term loan such as an 84-month auto loan before you commit to getting one so you can evaluate whether or not it will meet your financial needs.

What is an 84-Month Auto Loan?

An 84-month auto loan is a loan having a repayment period of 84 months. To put it another way, you’ll have seven full years (or 84 months) to pay back the loan. This loan duration is significantly longer than what was customary in the past. Certain banks are the only ones who provide such lengthy repayment schedules.

How Does an 84-Month Auto Loan Work?

A car loan comes with interest and fees, and these must be paid back over a specified period of time. With an 84-month auto loan, your monthly payment and interest rate are locked in for the entire loan term. An early loan repayment is an option for some debtors. But verify with your lender first, as they may impose a prepayment penalty in some cases.

Pros and Cons of an 84-Month Auto Loan

Pros

It’s not all bad news. Some advantages of an 84-month period are as follows:

• Reduced recurring costs. As the term length is increased from five to seven years, the borrower can access a larger sum of money at a manageable rate of interest. A longer term (84 months) might assist spread out settlements over a longer period of time, which can be helpful if you are on a limited budget.

• Reduce your ratio of debt to income. If you take out an auto loan for 84 months, your monthly installments will be more manageable. Having a modest debt-to-income ratio might also improve your chances of getting approved for a loan in the future.

• Affordable prices. Loaning money for as long as necessary might be financially beneficial when interest rates are low. Reduce your interest rate debt with the extra cash you’ve saved. Auto loans with lengths of 84 months will carry higher interest rates than loans with shorter maturities.

Cons

When it comes down to it, submitting an application for a car loan with 84 monthly settlements can be considered very high risk. Before you select a choice, give some thought to the following potential outcomes.

• It’s likely that your interest settlements will be higher. A longer-term on an auto loan typically results in a higher total interest payment over the course of the loan’s lifetime.
  
  Let’s say the sum of your loan is $30,000, and the interest rate is 4%, excluding any applicable sales taxes and fees. This is how the two sides of the comparison look.

Ultimately, the longer auto loan would result in an additional interest payment of around $1,295 for you.

If you have the means to do so, prepayment of a vehicle loan with 84 monthly settlements will help you reduce the total sum of interest that you will be required to pay. 

However, some lenders impose prepayment penalties, which are fees that must be paid in order to pay off all or part of a loan ahead of schedule. If you are considering going this way, it is important that you check the conditions of the loan agreement that you have entered into.

• It’s possible that you owe more on your automobile than it’s worth. An 84-month auto car loan could also place you in a larger danger of falling upside down on your loan. This is due to the fact that the value of a brand-new automobile begins to decrease the instant you drive it off the lot.
  
  That means you run the risk of ending up with negative equity, which means you owe more on your car than it is worth. If this is the case, you may not even be able to break even, let alone make a profit, if you decide to sell your automobile before it is paid off, as the situation currently stands.
  
  And if your automobile is involved in a crash before it is paid off, the insurance company might only compensate the market value of the vehicle (depending on the coverage you have), which is quite likely to be a sum that is lower than what you still owe on the vehicle. 
  
  You can still be obligated to make the monthly settlements on the vehicle until it is paid off, even if it isn’t in a condition where it can be driven.

• There is a possibility that you will require maintenance while you are still paying off the loan. While you are making settlements on your seven-year loan, you may at some point be required to pay for repairs as well. This is due to the fact that the majority of brand-new automobiles come standard with fundamental warranties that last between four and five years and powertrain guarantees that last between five and six years. 
  
  Should something go wrong with your vehicle after the warranty has expired but before you have paid it off, you may be required to pay for any necessary repairs in addition to your regular car payment.
  
  Having said that, a lot of people choose loans with longer terms. According to research carried out by the credit agency Experian in 2018, it was found that 42.2% of people purchased used automobiles and took out loans with periods ranging from 61 to 72 months, while 18.1% of people extended their maturities to between 73 and 84 months.
  
  If you took out an 84-month loan to purchase a car that was 5 years old, by the time you paid off the loan, the automobile would be 12 years old and might require some kind of maintenance or repair.

Should You Get an 84-Month Auto Loan?

Consider taking out an 84-month loan if you:

1. Need a car right away. You may not have enough money saved up for a substantial down payment that would make the monthly settlements manageable on a shorter-term loan if you need a car urgently. Lower monthly settlements made possible by a longer loan term could be the deciding factor in whether or not you decide to buy a car.

2. Unable to afford higher settlements. Many car lots don’t need a down payment, but that often results in higher monthly settlements and a shorter loan period. If you’re worried about being able to afford the greater settlements that come with shorter periods, an 84-month loan may be a good option.
   
3. Have additional monthly debt to pay off. Loans with longer durations provide lower monthly settlements, allowing you to consolidate other debts at the same time. There may be other debts you need to take care of, such as credit card or medical settlements.

When Does an 84-Month Auto Loan Make Sense?

There are some circumstances in which 84-month auto loans could be a viable choice, despite the fact that in most cases they do not make a lot of sense financially. Here are a few examples:

• In the event that you require a lower regular payment. If you find yourself in a position where you require a car, an auto loan with 84 months could result in monthly settlements that are lower, more manageable, and more in line with your budget than they would be with a loan with a shorter duration.
  
  But if you don’t have enough money to pay for a specific vehicle outright without spreading your auto settlements out over a period of seven years, you need to ask yourself if you can actually afford the car you’d like to buy in the first place.
  
  It is possible that you might select a different vehicle that is more suitable for your financial situation or that you should save funds for a greater down payment in order to reduce the sum of money that you will have to borrow.

• To eliminate higher interest debt. If you have other debts with interest rates that are greater than the projected interest rate on your auto loan, this may be another circumstance in which you might be eligible for an 84-month auto loan. 
  
  You might want to get a car with a smaller installment so that you have more money available to you each month to go toward paying off your other loan, which has a higher interest rate. Doing so might end up saving you funds in the long run.
  
  You may be able to save additional money with an extended auto loan term of 84 months, which you can then put toward paying off debt with a higher interest rate. 
  
  Your monthly installments would be $559.29 if, for instance, you financed an automobile with a price tag of $30,000 over a term of five years at an annual percentage rate of 4.5%, with no deposit (and not adding any taxes or other expenses), and if the APR was 4.5%. 
  
  If you choose a seven-year term and everything else remained the same, your total cost would be $417, which is approximately $142 less per month.
  
  Let’s imagine you have a $20,000 balance on a credit card that has an APR of 20%. You might put that additional $142 a month toward paying down the balance on one of your credit cards and potentially reduce the sum of interest you are charged on all of your other bills.

Alternatives to 84-Month Auto Loans

Assuming you don’t want or are unable to commit to a loan with a duration of exactly 84 months, you could want to look into:

Putting away money for a sizable down payment. Payments per month will be reduced in proportion to the size of the down payment. Saving up for a large monthly payment can be difficult or impossible, but a smaller, upfront payment can be much more manageable.

Trying to find a cheaper vehicle. Consider your financial plan a map. If you can manage to keep your monthly settlements down to the maximum allowed, you’ll be doing yourself a favor. Find a cheaper vehicle that yet serves your needs. Smaller loans mean shorter repayment periods, if necessary.

Substituting renting for ownership. Leases are often for a shorter period of time (24-48 months) and require less money upfront. Less money is required monthly since settlements are calculated based on the vehicle’s declining value rather than the full retail price.

Bottom Line

If you’re wondering whether or not it’s a good idea to get a vehicle loan with 84 months of settlements, you should think about all of the associated financial hazards. With an auto loan spread out over 84 months, your monthly settlements will be lower; nevertheless, the total sum of interest you pay will be higher.

In addition to this, if significant repairs are required or if you are involved in an accident in the future, you may still be responsible for paying for the car.

Before you submit an application for an auto loan with 84 monthly settlements, you should carefully examine how this decision can influence your long-term financial situation and look into all of your available alternate financing options.