Many people rely on auto loans to finance new or used vehicle purchases. Most car loans are available in lengths of 36 months (three years) to 84 months (seven years).
For some drivers, an 84-month car loan might be the best choice for their situation. However, long-term car loans also end up costing more over time than a short-term loan. Before signing the papers on an auto loan for 84 months, it’s important to understand the pros and cons of this option.
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What is an 84-Month Car Loan?
An 84-month car loan is a loan term that spans seven years. It functions just like any other car loan. When you buy a new or new-to-you vehicle from a seller, you finance the purchase with a loan that you pay back over those 84 months, plus interest.
How much interest you pay on the loan varies based on many factors, including the bank or lender that offers you the loan, your credit score, the value of the vehicle you purchase, and your income.
In general, 84-month loans are less common than shorter term loans of 36- or 48-months. Shorter term loans typically have higher monthly payments, but because the loan period is shorter, drivers pay less in interest over time.
With an 84-month loan, you’re able to stretch your payments out over a longer period of time. This makes the monthly payments more affordable, but the cost of interest can stack up over time, meaning drivers ultimately pay more.
What are the Benefits of an 84-Month Car Loan?
While taking on an 84-month auto loan isn’t the most ideal choice, this loan term has some advantages. Some of the pros of a long-term loan include:
- Lower monthly payments: If you have a tight budget but need to buy a reliable vehicle, a long-term loan may be the right option for you. An 84-month loan often has a low monthly payment because you pay off the loan over a seven-year period.
- Reduced debt-to-income ratio: Since this type of loan has the benefit of lower monthly payments, it can also reduce your debt-to-income ratio. Your debt-to-income ratio is the percentage of your monthly income that goes toward paying back your debts. Having a low debt-to-income ratio makes it easier to qualify for future loans, particularly with more favorable terms.
- Potential to refinance: When you refinance a loan, you replace it with another loan, usually with better terms and reduced interest rates. Because 84-month loans allow you to pay off the loan slowly, it gives you ample opportunity to refinance in the future if you can get approved for a loan with better terms.
What are the Disadvantages of an 84-Month Car Loan?
There are some significant drawbacks to taking on an 84-month car loan. Before you choose this option, consider these cons:
- High interest payments: An 84-month loan will likely be more expensive than a shorter-term loan. Even though you’ll have a lower monthly payment, you’ll be paying interest over a longer period.
- Years of car payments: With an 84-month auto loan, you’ll be paying back your car for a very long time. This has a number of implications. For one, it’s possible that you might decide you no longer want the car. Or, your financial situation might change, making it difficult to afford the payments. While it’s possible to sell a car with a lien, you typically need to pay off the remaining balance first.
- Depreciation: Cars depreciate over time, and your car will probably lose a significant amount of value over 84 months. This can result in paying more than your vehicle is worth, which leads to a situation called negative equity. When you have negative equity in a car, it can be very difficult (and expensive) to sell the car if you want to get out of the loan.
When to Get an 84-Month Car Loan
Despite its risks, sometimes getting an 84-month loan makes sense. You might consider a long-term loan if any of these scenarios apply to you:
You’re on a Budget
The best auto loan is the one you can afford. Know your budget and be realistic about how much you can afford in monthly car payments. If you need the lowest rate possible and you can’t wait to buy a car until you’ve saved more money, an 84-month loan might be your best option.
You Can Get Something More Reliable
You might choose a long-term loan to get a better, more reliable vehicle at an affordable rate. For example, your budget may have more room to accommodate an older, high-mileage car, but reliability issues and the potential for high maintenance and repair costs may hurt you in the long run. Getting a long-term loan for a car with a higher sticker price, but that makes you feel secure in your investment, may be worth the peace of mind.
You Can Pay It Off Early Without Penalty
If you can afford to pay off your loan early, it could save you a significant amount of money in interest fees. However, some loans come with prepayment penalties. Before you take out an 84-month loan, it’s important to ask the lender if these fees apply.
You Plan to Refinance
Refinancing lets you swap your current loan for something better. If you expect your financial situation to improve, you could get an 84-month loan now and plan to refinance it in the future. That way, you can get a reliable vehicle that fits your budget now, and refinance with a more favorable loan when you can afford a higher monthly payment.
You Can Get a 0% Interest Rate
It’s not common, but some lenders offer 0% APR on 84-month loans. This means you’ll only pay back the value of the loan. With this APR, there’s no difference in costs between long-term and short-term loans. You get the benefit of reduced monthly payments without having to pay for seven years of accumulating interest.
When to Avoid an 84-Month Car Loan
Getting an 84-month car loan isn’t the most favorable option for most drivers. Here’s when to avoid getting this type of loan:
You Can Afford a Shorter Loan Term
Getting a shorter loan term is usually a better option if you can afford it. Choosing a loan with a shorter repayment period means you’ll pay less money in interest over the lifetime of the loan. Your monthly payment will be more expensive with a shorter-term loan, but you will have saved money when the car is fully paid off.
You Might Face Repair Issues
By the time you pay off your car with an 84-month loan, it’s going to be seven years older. That’s seven years of wear and tear that’s going to show up in your maintenance and repair bills. Plus, you’ll probably be well outside of your warranty. Paying for repairs, in addition to your monthly loan, could affect you financially. If you’re buying a used or older car, your repair fees may be even harder to manage on top of your loan payments.
You Can’t Justify the Interest Rate
Long-term loans usually have higher interest rates than shorter term loans. A long-term loan is riskier to the lender because you have more opportunities to miss payments. If you don’t want to pay the high interest rate associated with an 84-month loan, you should choose a shorter loan term, if possible.
Alternatives to an 84-Month Auto Loan
Taking out a car loan is big responsibility. If you don’t make your payments on-time, or if you default on the loan, it can affect you in several ways. Before you choose an 84-month car loan, you should consider all your options. Here are some alternatives to think about before you choose a long-term auto loan:
- Wait and save: If you have your heart set on a particular vehicle and you don’t need a car right away, it may be better to wait. Save up, build your credit, and make your purchase when your financial situation improves, and you can afford a shorter loan (or pay with cash).
- Choose a cheaper car: In some cases, it makes more sense to settle for a cheaper vehicle that won’t tie up your budget for seven years. While it may not be the car of your dreams, being realistic about what you can afford will keep you from making a costly mistake.
- Adjust your budget: Take a hard look at your budget and see if you can cut back on spending in any areas. For example, if you cancel several streaming subscriptions you never use, you could free up some money that can be put toward a car payment.
- Consider a lease: Leasing a car allows you to get behind the wheel of a new vehicle at an affordable rate. This can be a good short-term option, but you won’t own the car unless you purchase it at the end of your contract.
Should You Get an 84-Month Car Loan?
In most cases, getting an 84-month car loan isn’t the best option. While a long-term loan can keep your monthly payments low, these loans are often more expensive over time due to interest fees.
However, an 84-month car loan may be worth it if you need a reliable vehicle soon and don’t have time to save money or increase your budget. Whichever option you choose, take some time to weigh the pros and cons to figure out if a long-term loan is the right choice for you.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.