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Should you take an 84-month auto loan?

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Longer terms mean lower monthly payments on your auto loan. They can have some benefits for the right buyer — but expect to pay more overall.  

So, before you opt for an 84-month term, understand the trade-offs and alternatives.

What is an 84-month auto loan?

Essentially, they’re the same as any auto loan. An 84-month auto loan stretches the repayment period to seven years. Your lender amortizes your loan over this term to determine how much you pay each month in principal and interest. 

For example, consider a $20,000 auto loan with a 3.49 percent interest rate. If you were to opt for a 60-month repayment term, your monthly payment would be $364. Extend that term to 84 months, though, and your monthly payment would drop to $269. 

But that 60-month term would only cost you $1,825 in interest. Since there’s more time for interest to stack up, an 84-month term is naturally more expensive: You’ll wind up paying $2,571 — nearly $750 more.

Reasons to avoid 84-month auto loans 

Although a longer auto loan term means a lower monthly payment, it could be trouble later on. Here are some potential pitfalls to watch out for: 

More expensive  

While your monthly payments will be lower with a longer term, the total interest charged will be higher. No matter how much or how little you finance, you’re going to pay more in interest with a longer loan. It may not be enough to be a deal breaker when faced with a more affordable payment every month, but it’s money that could be spent elsewhere.  

Not only that, 84-month car loan rates tend to be higher because longer terms are riskier for lenders. And that’s if the option is offered at all. 

Depreciation 

On average, a new car can lose more than 10 percent of its value within the first month after you drive it off the lot, according to Carfax. You’ll lose 20 percent — or more — in the first year and 60 percent by the fifth year.  

With a lower monthly payment, you have an increased risk of owing more than your car is worth. This means if you want to sell the vehicle or it gets totaled, you’ll need to pay the difference out of pocket. 

Repair issues 

The older the car, the more costly the repairs are. With an 84-month term, there’s a much higher chance that you’ll need to shell out for repairs while you still have a monthly payment. If you have a tight budget and low emergency reserves, it could put a big strain on your budget. 

Expired warranty 

There are some new cars that offer long warranties, but most are three years or 36,000 miles. With an 84-month loan, you’ll still be paying off your car long after the warranty ends. Try to avoid an auto loan term that exceeds the length of your car’s warranty. 

If you’re getting a used car, you likely won’t have a warranty to worry about. This makes expected depreciation and average repair costs even more important — so don’t skimp on research. Kelley Blue Book and Edmunds both have estimates on the total cost to own that go beyond general repairs covered by a warranty. 

Benefits of an 84-month auto loan 

It’s not all doom and gloom. There are some benefits of an 84-month term you should consider:  

  • Lower monthly payments. Seven years is a long time — you can borrow more money and still have a relatively low monthly payment. If you have a tight budget, an 84-month term may help keep month-to-month costs down. 
  • Lower debt-to-income ratio. With an 84-month car loan, your monthly payments will be lower compared to your income. And a low debt-to-income ratio may make it easier to qualify for future loans.  
  • Competitive rates. When interest rates are low, it can make sense to borrow money for as long as possible. You can use your added savings to pay off higher-interest debt. Just know that 84-month auto loans will have higher rates than auto loans with shorter terms. 

When to consider an 84-month auto loan 

There are circumstances where you have a tight budget or don’t have a lot of room to negotiate with a car dealer. When you have limited choices available, a long-term auto loan may be the best option.  

  • A longer term is the only way to fit monthly payments into your budget. 
  • There is no penalty if the auto loan is paid off early. 
  • The length of the term enables you to afford a better, more reliable vehicle. 
  • Your car has a long warranty, minimizing overall repair costs. 
  • You can qualify for a low interest rate and want to invest the difference for a better return on your money. 

Other auto loan options 

Use an auto loan calculator to get an idea of what a longer term will cost you. If you’re not sure a longer term is right for you — even with the best 84-month auto loan rates — here are some alternatives to consider: 

  • Wait and save. If you’re stuck on a specific model but can’t afford it without a longer term, consider waiting to accumulate enough cash for a higher down payment. Use an auto loan down payment calculator to see how much it can reduce your monthly payment. 
  • Opt for a cheaper car. If you don’t have time to save for a larger down payment, consider changing your expectations to a less expensive vehicle that allows you to finance for a shorter term. 
  • Find room in your budget. If you haven’t already, take a look at your income and expenses for the last few months and determine if there are areas where you can cut back to make room for a higher monthly payment. 
  • Lease instead of buying. Leases have shorter terms than auto loans on average — roughly three years, according to Experian. Despite the shorter term, they have lower monthly payments because they’re based on the vehicle’s depreciation and not its sales price. 

How to choose an auto loan term length 

Consider the amount you’re financing, the interest rate and your budget. It’s not uncommon for dealers to try to convince car buyers to choose longer terms on their auto loans, but it’s certainly not worth giving in to sales pressure. 

The shorter you can get your auto loan term, the better. Not only does it ensure that you pay less interest, but it will also result in you paying off the debt sooner. That means you’ll have that extra cash every month to put toward other debts and expenses. 

If you won’t be able to afford a higher monthly payment, you can always take a longer repayment term at the start and refinance your loan when your budget allows. If your lender doesn’t charge a prepayment fee, you can also pay off your loan early and save money on interest. 

As you consider term lengths, keep your current situation, needs and long-term goals in mind. There’s no auto loan length that works best for everyone, so understanding your finances will help you find the best path forward. 

The bottom line 

Although you’ll have smaller monthly payments with an 84-month car loan, you’ll ultimately pay more in interest. You also risk owing more on the loan than your car is worth and potentially large repair bills. Before choosing a longer auto loan term, consider a shorter term to save more overall.  

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Written by
Ben Luthi
Contributing writer
Ben Luthi is a personal finance and travel writer who loves helping people learn how to live life more fully. His work has appeared in several publications, including U.S. News & World Report, USA Today, Yahoo! Finance and more.
Edited by
Auto loans editor