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Do you need to take out an auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive financial calculators and financial tools that provide objective and original content. This allows users to conduct studies and compare data for free and help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that pay us. This compensation can affect the way and where products are displayed on this website, for example for instance, the order in which they may appear in the listing categories, except where prohibited by law. This applies to our mortgage or home equity, and also other products that lend money to homeowners. This compensation, however, does not influence the content we publish or the reviews that you read on this site. We do not cover the universe of companies or financial offers that may be accessible to you. SHARE: Standret/Shutterstock
5 min read published March 02, 2023.
Ben Luthi Ben Luthi Written by Contributing writer Ben Luthi is a personal finance and travel writer who loves helping people discover how to live their lives more fully. His work has appeared in numerous publications that include U.S. News & World Report, USA Today, Yahoo! Finance and more. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to control their finances with clear, well-researched information that breaks down complicated subjects into digestible pieces. The Bankrate promises
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We are compensated in exchange for the placement of sponsored products andservices or through you clicking certain links posted on our website. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law. This is the case for our loan products, such as mortgages and home equity, and other products for home loans. Other factors, such as our own proprietary website rules and whether a product is available within the area you reside in or is within your self-selected credit score range could also affect how and when products appear on this site. We strive to provide the most diverse selection of products, Bankrate does not include details about each credit or financial product or service. More time-bound terms translate to lower monthly payments on the auto loan. They can have some benefits when you are the right buyer- but expect to pay more overall. Therefore, before you decide for an 84-month contract be aware of the trade-offs and options. What’s an 84-month auto loan? In essence, they’re the same as any auto loan. An 84-month auto loan will extend the period of repayment up to 7 years. The lender will amortize your loan over the course of this time to determine how much you have to pay each month in principal and interest. Consider, for instance, an auto loan with a 3.49 percent rate of interest. If you were to opt for a 60-month term to repay, your monthly payment is $364. Extend that period to 84 months however, and your monthly installment would fall to $269. The 60-month option will only cost you 1 825 dollars in interest. As there’s more time for interest to stack up, an 84-month period is more expensive. You’ll end up paying $2,571 or nearly $750 more. There are a few reasons to stay clear of 84-month auto loans While a longer loan term means lower monthly payments however, it could cause problems in the future. Here are some potential pitfalls to watch out for more expensive Although your monthly payments are lower when you have the length of the loan however, the total amount of interest will be more expensive. No matter how much or little you can finance the loan, you’ll be paying more interest for a longer loan. This may not be enough to be an issue when you’re confronted with a lower monthly payment every month however this is money that could be put to use elsewhere. Not only that the 84-month loan rates are generally higher because longer terms are riskier for lenders. And that’s if the option is offered in any way. Depreciation On average, a new car can be able to lose more than 10 percent of its value within the first month following your drive it off the lot, according to . It’s possible to lose 20 percent- or more — during the first year and 60 percent by the fifth year. With a lower monthly installment and a higher chance of . If you decide to sell your car or it is completely destroyed, you’ll have to pay the extra cost out of pocket. Repair issues The older the car is, the more expensive the repairs will be. With an 84-month loan, there’s a much higher chance that you’ll need to pay for repairs the repairs even though you have a monthly payment. If you have limited funds and no reserve, it can be a major strain on your budget. Expiring warranty new vehicles with lengthy warranties, but they’re usually 3-year or more, with 36,000 miles. If you take out an 84-month loan it will be paying off your vehicle long after the warranty expires. Beware of a loan term that exceeds the length of your car’s warranty. If you’re buying a there’s a good chance you won’t have a warranty to think about. This makes depreciation expected and repair costs average more important — so do not skimp on your research. Kelley Blue Book and Edmunds each have estimates of the total cost to own that go beyond general repairs that are covered by the warranty. Benefits of an auto loan It’s not all doom and gloom. There are some advantages to an 84-month term you should look at: Lower monthly payment. Seven years is a long period and you could take out more loans and still enjoy a fairly small monthly expense. If you’re working on limited funds and a 84-month contract could aid in keeping monthly costs low. Lower debt-to-income ratio. With an 84-month car loan, your monthly payments will be lower compared to your earnings. Also, a lower rate can allow you to be more eligible to get future loans. Low rates. When interest rates are low it is logical to borrow funds for the longest time possible. You could use the funds to repay higher-interest debt. Just know that the 84-month auto loans are more expensive over automobile loans with shorter durations. Consider an 84-month car loan There are times when you have a tight budget or do not have a lot of room to negotiate with a car dealer. If you are limited in the options available, a long-term auto loan might be the best alternative. A longer-term loan is the only option to make regular payments within your budget. There is no penalty if the vehicle loan is paid off in the early. The duration of the loan enables you to afford an improved, more reliable car. Your car has a long warranty, minimizing overall repair costs. You can qualify for a low interest rate and want to put the money into a better return on your money. Other auto loan options Use an to gain an understanding of the amount a longer-term loan will cost you. If you’re not certain if a longer term is right for you, even with the most favorable 84-month option, here are some alternatives to consider: Wait and save. If you’re stuck with a specific model but can’t afford it without a long-term look into waiting until you’ve accumulated enough cash to make a bigger down amount. Make use of the auto loan to see the amount it could reduce your monthly payment. Opt for a cheaper car. If you don’t have time to save up for a bigger down payment, you might want to change your plans to a less expensive vehicle that can be finance it for a shorter time. Make room within your financial plan. If you haven’t done so taken a look at your expenses and income in the past couple of months and see the areas you could cut back on your spending to make room for the higher monthly payments. Lease instead of buying. Have shorter terms than auto loans generally approximately three years, as per . Despite their shorter terms they offer lower monthly installments due to the depreciation of the vehicle, not its sales price. What should you consider when choosing an auto loan term length ? Consider your loan amount, the interest rate and your budget. It’s not uncommon for buyers to opt for longer terms on their auto loans, but it’s certainly not worth giving in to sales pressure. The shorter your auto loan duration, the more advantageous. Not only does it guarantee you pay less interest but it also results in the repayment of the debt sooner. You’ll also have extra money each month to put toward other debts and expenses. If you aren’t able to afford a higher monthly payment, you could opt for an extended repayment period starting at the beginning, and then as your budget permits. If you’re lender doesn’t have a prepayment charge, you can also make the payment on your loan in advance and save on interest. As you consider term lengths be sure to keep your current circumstances as well as your long-term goals and needs in your mind. There’s no auto loan length that works best for everyone, so understanding your financial situation will allow you to determine the most effective path to take. In the end, even though you’ll pay lower monthly installments with an 84-month car loan however, you’ll end up paying more interest. There’s also the risk of paying more for the loan than your car is worth and could incur huge repair costs. Before choosing a longer auto loan time frame, consider an earlier term to save more overall. Find out more
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Written by Contributing writer Ben Luthi is a personal finance and travel writer who enjoys helping people understand how to live life fully. His work has appeared in a variety of publications that include U.S. News & World Report, USA Today, Yahoo! Finance and many more. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances through providing concise, well-studied information that breaks down complex topics into manageable bites.
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