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Auto loans typically have terms ranging from 24 months to 84 months—or two to seven years—which determines the size of your monthly payment and interest charges. With a shorter term loan, you’ll pay more per month but owe less interest over the life of the loan. Longer term loans, like an 84-month auto loan, offer smaller monthly payments that result in more interest charges.
While the majority of auto loan borrowers take out 60-month, or five-year loans, the best term for you is one that you can afford. For example, if you need a car but can only afford to pay smaller monthly payments, an 84-month auto loan could be right for you. Before taking out a longer term loan, like an 84-month auto loan, understand how it works to decide if it’s right for you.
What Is an 84-month Auto Loan?
An 84-month auto loan is a seven-year loan. While three- and five-year auto loans were most common for buyers in previous years, there’s a rising trend of long-term auto financing. For example, in 2019, more than 18% of loan terms were for 84 months or longer—that figure rose to almost 21% in 2020, and it’s now more than 22%.
How an 84-month Auto Loan Works
When you take out an auto loan, you’re given a set amount of time to repay it, including interest and fees. An 84-month auto loan means you pay the same fixed interest rate and monthly payment for 84 consecutive months. Some borrowers may want to pay off their loan early; however, lenders sometimes charge a prepayment penalty, so be sure to check with your lender before doing so.
When an 84-month Auto Loan Is a Good Option
An 84-month loan is a good idea if you:
- Need a car immediately. If you need a car immediately, you might not have the cash on hand to bring a large down payment that results in affordable monthly payments on a shorter term loan. Longer loan terms, and therefore smaller monthly payments, might be the difference-maker between buying a car and not.
- Can’t afford larger payments. Many dealerships have little to no down payment requirements, but that means larger monthly payments on a shorter term loan. If you don’t think you can swing larger monthly payments with shorter terms, consider an 84-month loan.
- Have other monthly debt to repay. Longer loan terms mean lower monthly payments, giving you the chance to pay off other debt simultaneously. You might have outstanding credit card bills, medical bills or other debt that needs your attention too.
Disadvantages of an 84-month Auto Loan
There are downsides to an 84-month auto loan, including:
- Paying more interest. The longer your loan terms, the more you’ll pay in interest over the life of the loan compared to shorter loan terms, even if you have the same interest rate.
- Becoming upside down on the car. By the time year seven rolls around, your car would have depreciated significantly. If you want to trade it in for a new car or even sell it privately, you’ll get much less than what you originally paid for it.
- Maintaining repairs. Some older cars need more attention than others. There’s a chance you may need extensive repairs on a car that you’re still paying off more than five years after you bought it. It’s easier to justify maintenance repairs on older cars that you own free and clear.
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Choosing Long-term vs. Short-term Auto Loans
Shorter terms mean higher monthly payments. But the sooner you pay off your car, the sooner you own it outright. If you can afford a shorter auto loan than 84 months, you should do it.
Here’s how the total interest paid and monthly payment for a $25,000 car with a 3% interest rate and no down payment fluctuate depending on the loan term.
In this example, an 84-month loan shows $1,575 more in interest compared to 36 months. Longer loan terms make sense if you need to keep your payments low enough so you can afford them. But remember how much more in interest you’ll pay if you opt into longer terms.
Alternatives to an 84-month Loan
If you can’t afford shorter loan terms and/or don’t want to take on an 84-month loan, consider:
- Saving up for a large down payment. The larger your down payment, the lower your monthly payments. It’s not always easy or feasible to afford large monthly payments, so the more you save up beforehand for a down payment, the less you’ll need to pay off every month.
- Finding a cheaper car. It’s important to use your budget as your guide. You may have a maximum monthly payment, but staying below it is always a good move if possible. Instead, find a less expensive car that meets all your needs. You can take on a smaller loan and possibly afford shorter repayment terms.
- Leasing instead of buying. Leases are short-term, usually 24 to 48 months, and typically have small or nonexistent down payments. Payments are typically lower because they’re based on the car’s depreciation as you drive it and not the purchase price.