Is an 84-month auto loan a good idea? (2022) - Finance - MarketWatch

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With low monthly payments, an 84-month auto loan may look like a good idea on paper. But those lower car payments come at a real financial cost: interest. And while you’ll almost certainly pay more overall than you would with a shorter-term loan, there are some situations in which an 84-month auto loan might make sense.
We at the Home Media reviews team looked at the pros and cons of these longer loan terms and whether the numbers can add up to a sound financial decision. This guide will help you understand how these loans work and where you might be able to find the best auto loan rates and best auto refinance rates with 84-month terms.
An 84-month auto loan gives you seven years to repay the lender. While shorter term lengths are more ideal, the most common term length in the American auto market is 72 months, according to Edmunds.
As car prices rise, 84-month auto loans are becoming more popular. Splitting your car payments up over a longer term can bring your monthly obligation down — often significantly. The downside is that with those lower monthly payments comes more time to generate interest, along with other potential risks.
Signing up for an 84-month auto loan comes with serious drawbacks. There are a few things you should take into consideration before taking one on.
The most obvious downside of an 84-month auto loan is that you’ll pay more in interest over the life of the loan. Longer loan terms tend to have the highest interest rates, but they can also increase the total interest you pay in other ways.
Since you’d pay less each month, you’d also pay less toward your loan principal — the original amount you borrowed. As a result, you’ll pay more in interest for a longer period of time toward the start of your loan.
The table below shows how different loan terms affect the total amount of interest that would be paid on a $25,000 loan with a 5.2% interest rate.
Owing more on your vehicle than it’s worth is known as being upside down on your auto loan. This state of negative equity, also known as being underwater, is a dangerous place to be financially. It puts you at risk of having to make loan payments on a car you no longer have if it’s totaled.
How long you spend upside down depends on how much you put down on a vehicle, your loan term and how quickly your vehicle depreciates. Taking on an 84-month auto loan could leave you underwater for years.
Once you pay a car loan off, the remaining equity in your vehicle is a financial asset. However, the older your vehicle is and the more miles it has, the more it depreciates.
With an 84-month loan, you’ll be paying for your car for seven years. Even if you buy a brand-new vehicle, your car will be more than seven years old by the time you finish paying for it. While it will still have some value, it will be significantly lower than if the car were newer.
Despite the drawbacks, there are some advantages to 84-month car loans. Depending on your situation, a longer loan term could work out in your favor.
The main advantage of an 84-month loan is that you’ll have a lower monthly payment. Even if you can afford to pay more now, your financial situation could change overnight. Having a lower monthly payment can insulate you from the risk of not being able to repay your loan and losing your car.
Sometimes, getting an 84-month auto loan is a necessity. It’s useful to remember that you may be able to refinance your auto loan in the future.
When you refinance your auto loan, you get a new loan to pay off your existing one. If you can manage bigger payments in the future, you may manage to get a refinancing loan with a shorter term. You may even be able to do so at a lower interest rate.
Auto loans lasting 84 months are more common than they used to be. However, they’re still not as common among lenders as 24- to 72-month terms. If you think an 84-month car loan is the right move for you, you have a few options.
Traditional banks are often the first stop when borrowers are shopping for car loans. With many of the biggest banks now offering 84-month financing, it might be worth seeing if yours is one of them.
Some banks will offer you a discount on your auto loan rate if you have a checking account, savings account, credit card or other financial account with them. Even if your bank doesn’t, the convenience of having all your banking in one place is worth considering.
Credit unions offer many of the same advantages as commercial banks do, but in the form of member-based organizations. While credit unions may offer low rates and few fees, they require membership based on specific criteria to access their loan products.
Credit unions’ membership requirements range from working for a certain employer to making a donation to an approved charitable organization to paying a membership fee. Many operate nationwide and offer 84-month auto loans as part of their portfolios.
You can also go the digital route for an 84-month loan. As more people shop for cars on the internet, online lenders are becoming a more popular source of financing. You’ll find plenty of options that offer longer loan terms.
And just because online lenders don’t have physical branches doesn’t mean they’re not reputable providers. Many are backed by established banks, and some are even the online lending face of a bigger bank.
With a lending marketplace, rather than applying with individual lenders, you enter your information into a portal and wait for loan offers.
In addition to cutting down on the legwork, this option lets you compare loan offers in one place. However, if you use one of these marketplaces, research lenders carefully. While you’ll get offers from established lenders, you may also get offers from less reputable ones.
Most car dealers provide their own financing options, and many offer 84-month vehicle loans. You may be able to find a great deal on a long-term auto loan. Dealerships — especially single-brand dealerships — sometimes offer 0% financing, even on longer-term loans.
Don’t just assume you’ll get your best deal at the dealership. Car buyers may also find some of the highest interest rates at dealerships.
Interest rates for 84-month auto loans vary widely based on lenders and details about borrowers and the vehicles they want to finance. While the term length is a factor in the overall cost of your loan, it’s not the only one.
Your credit history, income and debt obligations all help determine your lending rates. But no factor is more significant than your credit score. Borrowers with lower credit scores pay higher interest rates on average.
The table below shows the average interest rates for new and used car loans based on different credit scores, according to data from Experian.
While an 84-month auto loan may not have the best interest rate, it may have a lower rate than some credit cards or other loans. Some people use the relatively low interest rates of car loans to refinance their credit card debt, for example.
Here’s how a cash-out refinance works: If your car is relatively new and you’ve paid off a good portion of the principal, you have equity in the car. You can get an 84-month cash-out refinance auto loan with a small down payment to withdraw that equity. You can then use the equity to pay down higher-interest debt like credit cards and personal loans.
A cash-out refinance won’t change the total amount of your debt, but you could pay much less interest on what you owe.
There are many reasons why an 84-month auto loan might not be your best option. Here are a few of them:
Despite its many drawbacks, an 84-month auto loan may be a good choice for you in certain scenarios, such as:
For people who can afford shorter terms, 84-month auto loans are generally too expensive to recommend. But for those who can’t afford the cars they want without taking on longer loan terms, they can be useful. Auto loan calculators can help you get a better idea of how much your monthly payments and total interest would be with different loan terms.
If you’ve decided that an 84-month auto loan is the right move for you, it’s important to find a reputable provider. When you’re looking for a car loan, the only way to make sure you get the best rates is to get offers from multiple lenders and compare them. We recommend starting with myAutoloan and LightStream.
As a car financing marketplace, myAutoloan is a great place to seek out multiple auto loan offers at one time. Plus, with a minimum credit score of 575, the company is open to a wider range of borrowers than many lenders. Once you enter your information, you can get an instant offer and wait for more offers from lenders in myAutoloan’s network to come in. This lets you easily compare a few loan options to find the best one for you.
For borrowers with high credit scores, LightStream may be one of the first places to look for an auto loan. The company offers low rates and a convenient online experience backed by Truist, an established financial institution. LightStream’s loan amounts range from $5,000 to $100,000, so it could be a good choice for a variety of car-buying options.
Keep reading: LightStream review
Many banks and other lenders offer 84-month auto loans. However, these longer loan terms often come with higher interest rates and some additional risk.
For most borrowers, an 84-month auto loan may not be the best idea due to high interest rates, increased risk and vehicle depreciation. However, an 84-month auto loan can be a good idea for borrowers who need lower monthly payments.
When you see 0% financing for 84 months, it means a seven-year loan that doesn’t charge interest. This means you’ll pay no interest over the entire life of the loan.
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.
In this article, we selected companies with high overall ratings and cost ratings. The cost ratings were informed by starting APR and loan amounts.
*Data accurate at time of publication.
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