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Understanding the Pros and Cons of an 84-Month Auto Loan

Car buyers facing inflation and high car prices may be exploring ways to secure a car loan while managing their finances. One option is the 84-month car loan, which allows you to repay the balance over seven years. This can lower your monthly payments and potentially enable you to purchase a more expensive car. However, it’s essential to consider interest rates, total loan costs, and your financial situation before committing to an 84-month auto loan. Here’s what you need to know.

Benefits of an 84-Month Auto Loan

Longer-term car loans have gained popularity in recent years. According to Experian’s State of the Automotive Finance Market report from Q3 2022, most new car loans have terms ranging from 72 to 84 months. Here are some advantages of opting for an 84-month auto loan:

Lower Monthly Payments

Choosing an 84-month auto loan can significantly reduce your monthly car payments compared to shorter loan terms. This can make it possible to buy a car that might otherwise be out of your budget.

Higher Loan Amount

A longer-term loan may be the only way to afford a higher-quality vehicle, such as a new or certified preowned car. An 84-month loan allows you to spread out payments over a longer period, making the higher loan amount more manageable.

Early Payoff

Many lenders allow early payoff without additional fees. If your financial situation improves, you can make larger payments to reduce interest costs. Conversely, if you face financial difficulties, you can revert to minimum payments. Always check the loan terms and conditions before agreeing.

Drawbacks of an 84-Month Auto Loan

While an 84-month auto loan has its benefits, there are also significant drawbacks to consider:

Paying More in Interest

Long-term loans typically result in higher total interest payments. For example, a $25,000 car loan at 5% interest over 84 months will cost $4,681 in interest, totaling $29,681. In contrast, a 36-month loan with the same terms will cost $1,974 in interest, nearly $3,000 less.

Car Depreciation

Cars often lose up to 20% of their value in the first year. With a long-term loan, you may owe more than the car’s value, known as negative equity. This can be problematic if you need to sell or trade the car or if it’s totaled in an accident.

Repair Issues

Most cars come with a basic factory warranty of three years or 36,000 miles. With a loan longer than 36 months, you may be without a warranty for part of the loan’s duration unless you purchase an extended warranty. Repair costs can add to your financial burden.

Alternatives to an 84-Month Auto Loan

If you’re considering an 84-month loan but have reservations, here are some alternatives:

Saving Up

If you don’t urgently need a vehicle, saving for a larger down payment or a shorter loan term can be beneficial.

Improving Your Credit Score

As your credit score improves, you gain access to more loan options, often with better terms. Consider ways to boost your credit score before applying for a loan.

Finding a More Affordable Car

If an 84-month loan is the only way to afford a new car, reconsider your options. Look for a vehicle that balances price and quality, even if it requires some flexibility.

The Bottom Line

Deciding whether to apply for a long-term loan is significant. Weigh the pros and cons of an 84-month auto loan carefully. Improving your credit score can help you access better loan offers. For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make informed financial decisions.

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