The terms of car loans are getting longer, and today there’s
nothing shocking about an 84-month auto loan, which stretches payments
out over seven years. In 2014, 62 percent of all car loans were for
terms longer than 60 months, and nearly 23 percent were for 73-
to 84-month terms.
Compare these figures to when auto industry titan Lee
Iacocca was a regional manager for Ford in the 1950s. Industry lore
has it that he became a star by inventing
an unheard-of sales pitch: Car buyers could
purchase a 1956 Ford for 20 percent down and $56 a month.
Loans were paid in full in 36 months.
How times have changed. Now, car loans of at least five
years are not uncommon, and while long terms have advantages
for certain buyers, they are not free of some big
How car loan term affects
||Length of loan
||Total amount paid at end of loan
Benefits of 84-month auto
- Qualification. The primary thing a lender
looks for when determining whether to approve a loan is the risk
level associated with the applicant. With an 84-month loan, your
monthly payments will be lower relative to your income. The lower
debt-to-income ratio may make it easier to qualify for the
- Monthly payments. Simply put, you can borrow
more money at a lower monthly payment with an extended repayment
- Cheap money. When interest rates are low, it
can make sense to borrow money for as long as possible, using the
money you save with lower payments to pay off higher-interest
- Lower delinquency rate. Borrowers with
credit scores of 641 to 680 who had auto loans of 84 months or
longer had a lower average 30-day delinquency rate than others
with similar credit scores.
Downside of 84-month loans
- Greater cost over time. The math bears out the
fact that the total cost of an 84-month loan is higher than a
60-month loan. Assuming an interest rate of 5 percent, the total
cost for a $35,000 car loan over 60 months is $39,630, but at 84
months the same loan will cost $41,554.
- Depreciation. According to Edmunds, a new car
depreciates by more than 9 percent the moment it’s driven off the
lot. One year later, that new car is worth nearly 20 percent less
than what you paid for it, and at the end of 60 months it could
very well be worth 63 percent less. The fact is, few cars hold
their value for 84 months.
- Repair issues. The older the car, the more
costly the repairs. Even if you can find someone willing to offer
an 84-month warranty on your automobile, it is likely to be
expensive. Without one, you pretty much guarantee yourself hefty
auto loan calculator to figure out the monthly payments on your
next new or used car.