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5 min read published March 02, 2023
Written by Ben Luthi Written by Contributing writer Ben Luthi is a personal travel and finance writer who loves helping people understand how to live their lives more fully. His writing has been featured in a variety of publications such as U.S. News & World Report, USA Today, Yahoo! Finance, and many numerous others. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to take control of their finances by providing concise, well-studied information that breaks down complex topics into manageable bites. The Bankrate guarantee
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This compensation could impact how, where and in what order products are listed and categories, unless it is prohibited by law. We also offer credit, mortgage and other home loan products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your personal credit score may also influence how and when products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. The longer terms will mean lower monthly installments on the auto loan. They may offer some advantages for the right buyer -- but you should expect to pay more overall. So, before you opt for an 84-month contract be aware of the trade-offs and options. What exactly is an auto loan? In essence, they're exactly 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 this term to determine the amount you'll pay each month in principal and interest. For example, consider an auto loan with an 3.49 percent rate of interest. If you were to opt for a 60-month payment term, your monthly payment would be $364. Extend that term to 84 months, but your monthly installment would fall to $269. But that 60-month term would only cost you the sum of $1,825 for interest. Because there's longer space for the interest rate to stack up, an 84-month term is more expensive. You'll wind up paying $2,571 or almost $750 more. The reasons not to take the 84-month auto loans While a longer loan term means lower monthly payments, it could be trouble in the future. Here are some possible pitfalls to avoid more expensive While your monthly payment are lower when you have the length of the loan, the total interest charged will be higher. No matter how much or how little you borrow it, you'll pay more in interest with an extended loan. This may not suffice to be an issue when you're confronted with a lower monthly payments each month, but it's money that could be spent elsewhere. In addition, 84-month car loan rates tend to be higher because longer terms are more risky for lenders. And that's if it's offered at all. Depreciation On an average an automobile that is brand new can be able to lose more than 10% of its value in the first month following your take it off the dealership, according to . It's possible to lose 20 percentor more within the first year, and up to 60 percent in the fifth year. With a lower monthly payment, you have an increased chance of . If you decide to sell your vehicle or have it damaged, you'll have to pay for the difference out of your pocket. Repair issues The older the car, the more costly the repairs are. If you have an 84-month contract is a higher likelihood that you'll have to shell out for the repairs even though you have a monthly payment. If you have a tight budget and low reserve, it can cause a huge strain on your budget. Warranty expiration There are a few new vehicles with lengthy warranties, but most are three years or 36,000 miles. If you take out an 84-month loan you'll being paying the balance of your car even after the warranty ends. Beware of a loan duration that is longer than the time frame of your car's warranty. If you're purchasing a it's likely that you don't have an insurance policy to think about. This makes the expected depreciation and average repair costs even more crucial, so do not skimp on your research. Kelley Blue Book and Edmunds both offer estimates on the total cost of ownership which go beyond the normal repairs which are covered under the warranty. Benefits of an auto loan It's not all doom and gloom. There are a few advantages of an 84-month loan that you must consider: Lower monthly payments. Seven years is an extended period and you could borrow more money , and enjoy a fairly affordable monthly cost. If you're working on a tight budget the 84-month period could help keep month-to-month costs down. Lower debt-to-income ratio. With an 84-month car loan and monthly payments, your expenses will be lower compared to your income. And a low may allow you to be more eligible to get future loans. Low rates. When interest rates are low it is logical to borrow funds for as long as is possible. You could use the money to cover your higher-interest debt. Just know that the 84-month auto loans are more expensive as compared to loans with shorter terms. loans with shorter durations. If you are considering an auto loan There are times when you're on a budget or haven't got a lot of room to negotiate with your car dealer. When you have limited choices that are available, a longer-term auto loan could be the most suitable choice. A longer duration is the only way to incorporate regular payments into your budget. There's no penalty for when you pay off your car loan is paid off early. The term length enables you to afford a better, more reliable vehicle. Your car has a long warranty, minimizing the overall cost of repairs. You can qualify for a low interest rate and would like to invest the difference for a better return on your investment. Other auto loan options You can use an auto loan to understand what a long-term contract will cost you. If you're not certain if that a longer-term loan is the right one for you -- even with the best 84-month -- here are some alternatives to think about: Wait and save. If you're stuck with a specific model but can't be able to afford the longer term, consider waiting to accumulate enough cash for a higher down payment. Use an auto loan to determine the extent to which it will cut your monthly installment. Opt for a cheaper car. If you aren't able to save for a larger down payment, think about changing your priorities to a lower-cost car that lets you finance for a shorter period. Find room for savings in the budget. If you don't have it taken a look at your expenses and income for the last few months and determine the areas you can reduce your expenses to allow for an increased monthly payment. Buy instead of leasing. They have lower times than auto loans in general -- roughly three years, according to . Despite having a shorter duration however, they are able to pay lower monthly payments because they're based on the car's depreciation, not the price it was sold for. How do you choose the right auto loan duration Consider the amount you're financing along with the interest rate, as well as your financial budget. It's not unusual for car buyers to opt for longer terms on their auto loans however it's not worth compromising to the pressure of sales. The shorter your auto loan duration the more beneficial. It's not just a way to guarantee that you pay less interest but it will also result in you paying off the loan sooner. This means that you'll have extra cash every month to put toward other debts and expenses. If you're not able to afford a higher monthly payment, you could opt for longer repayment terms starting at the beginning, and then as your budget permits. If you're lender doesn't charge a prepayment fee it is possible to take care to pay back your loan earlier and save on interest. When you think about the length of your term be sure to keep your current circumstances as well as your long-term goals and needs in mind. There isn't a loan length that is ideal for every person, therefore understanding your financial situation will allow you to find the best path forward. In the end, even though you'll pay lower monthly installments when you take out an 84-month car loan, you'll ultimately pay more interest. You also risk being liable for more on the loan than the car is worth, and possibly massive repair costs. If you are considering a long auto loan time frame, consider the shorter duration to save money overall. Find out more
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Written by a contributing writer Ben Luthi is a personal writer of travel and finance who enjoys helping people understand how to live their lives more completely. His writing has been featured in a variety of publications such as 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 editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances with clear, well-researched information that breaks down otherwise complicated topics into digestible pieces.
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