Gone are the days when car loans were typically paid off within the span of three to four years. Now, some lenders are offering 84-month auto loans, giving buyers the chance to spread their loan payments over a longer period of time. These longer-term loans have their advantages and disadvantages, and it’s important to understand them before making a decision. Here’s what you need to know about 84-month auto loans.
Lower Monthly Payments
The most obvious advantage of an 84-month auto loan is the fact that it can reduce your monthly payment. With a longer loan term, you’re spreading out the costs of the car over a longer period of time, meaning you’ll have a lower monthly payment. This can make it easier to fit a car loan into your budget and is an attractive option for those who are on a tight budget.
Higher Interest Rates
The downside of a longer-term loan is that it often comes with a higher interest rate. The longer you take to pay off the loan, the more interest you’ll end up paying. This makes it important to shop around and find the best interest rate available. It’s also important to make sure you can afford the higher monthly payments that will come with a shorter loan term.
Larger Total Cost
When you take out an 84-month auto loan, you’ll end up paying more in total than if you had taken out a shorter-term loan. This is because you’re paying off the loan over a longer period of time, so you’ll have to pay more in interest. It’s important to factor in the total cost of the loan, including the interest, when deciding which loan to choose.
Less Equity
Another downside of an 84-month auto loan is that you’ll have less equity in the car. Equity is the difference between what you owe on the loan and what the car is worth. With a longer loan term, you’ll be paying more in interest, so you’ll have less equity in the car when the loan is paid off. This can make it harder to get a good trade-in value when you’re ready to buy a new car.
Lower Resale Value
When you take out an 84-month auto loan, you’ll also have a lower resale value on the car. This is because the car will be older and have more miles on it by the time the loan is paid off. This can make it harder to get a good price for the car when you’re ready to sell it.
Shorter Repayment Timeframe
Another advantage of an 84-month auto loan is that you’ll have a shorter repayment timeframe. This means that you’ll be able to pay off the loan more quickly. This can be a good option for those who want to pay off the loan as quickly as possible.
Risk of Negative Equity
One of the risks of taking out an 84-month auto loan is that you could end up with negative equity. This means that you owe more on the loan than the car is worth. This can make it harder to get out of the loan if you need to sell or trade in the car. It’s important to make sure you can afford the monthly payments on the loan and that you’re not taking on too much debt.
The Bottom Line
An 84-month auto loan can be a good option for those who want to reduce their monthly payment and have a shorter repayment timeframe. However, it’s important to understand the risks associated with this type of loan, such as higher interest rates, less equity, and a lower resale value. It’s also important to make sure you can afford the payments and that you’re not taking on too much debt. By understanding the pros and cons of an 84-month auto loan, you can make an informed decision that’s right for you.
