When I first started looking into car financing options, I was overwhelmed by the sheer number of terms and conditions. One term that kept popping up was the 84-month car loan. As someone who takes financial decisions seriously, I was curious about whether this option was a good choice or if it was something I should avoid. In this article, I’ll dive into the details of 84-month car financing, explore its pros and cons, and help you decide if it’s the right option for your needs.
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What is 84-Month Car Financing?
An 84-month car loan is a type of auto loan where the repayment term is stretched out over 7 years. This means you’ll be paying off your car in 84 monthly payments instead of the more typical 36, 48, or 60 months. While it may seem like a tempting option due to lower monthly payments, there’s much more to consider before committing to such a long term.
How Does 84-Month Financing Work?
To understand 84-month financing better, let’s break it down. Typically, when you finance a car, you take out a loan from a bank or a dealership. You agree to pay the loan back in monthly installments, which include both the principal amount and the interest. The longer your loan term, the lower your monthly payments. However, this comes at the cost of paying more interest over time.
Let me explain with a simple example. Suppose I’m buying a car that costs $30,000 and I’m financing it at an interest rate of 5%. If I opt for a 60-month loan, my monthly payments would be around $566. But if I stretch that to 84 months, my payments drop to approximately $423.
While the lower monthly payment seems appealing, I have to remember that the longer loan term means I’ll be paying more in interest over time. In this case, over 60 months, I’d end up paying a total of $34,160. However, if I opt for 84 months, I’ll pay a total of $35,532. This is an extra $1,372 in interest.
Why Would Anyone Choose 84-Month Financing?
At first glance, it might not seem like a wise financial decision to extend a loan term for such a long period. However, some people might find the 84-month term appealing for a few reasons:
- Lower Monthly Payments: The main reason people choose 84-month financing is the lower monthly payments. If I’m on a tight budget and need to keep my car payment as low as possible, this option might be attractive. For instance, in the example above, reducing the monthly payment by $143 could make a significant difference in my monthly budget.
- Affordability of More Expensive Cars: With a longer loan term, I might be able to afford a more expensive car. If I can’t quite stretch to a $30,000 car with a shorter loan term, 84 months might allow me to get into a car that I otherwise couldn’t afford.
- Long-Term Car Ownership: If I plan to keep the car for a long time, say for 10 or more years, an 84-month loan might make sense. In the early years of the loan, my car might lose value, but I’ll still be making payments. However, once the loan is paid off, I’ll continue to drive the car without any monthly payments, potentially saving money in the long run.
Drawbacks of 84-Month Financing
While there are some advantages to 84-month car loans, there are also significant drawbacks. Here are the main reasons I might avoid this type of loan:
- Higher Interest Costs: As mentioned earlier, one of the biggest downsides of a longer loan term is the additional interest paid. The longer I’m making payments, the more interest I’ll pay. Over the course of 84 months, I’ll end up paying a substantial amount more than if I had taken a shorter loan.
- Car Depreciation: Cars lose value quickly, and the longer I take to pay off the loan, the greater the risk of owing more on the car than it’s worth. This is known as being “upside down” on a loan. For instance, if I buy a car for $30,000 and take out an 84-month loan, I might owe $25,000 after 4 years. However, the car might only be worth $18,000 at that point. This could become problematic if I need to sell or trade in the car before paying off the loan.
- Financial Flexibility: With a longer loan, my financial flexibility is limited. While the lower monthly payments might be manageable now, I could find myself stuck with the loan if my financial situation changes. Additionally, it might be harder to get approved for other loans or credit lines if I already have an 84-month car loan hanging over my head.
Is an 84-Month Loan Right for You?
To determine whether an 84-month loan is a good option for you, I suggest considering your personal financial situation and goals. Here are a few questions to ask yourself before making the decision:
- Can I afford the car with a shorter loan term? If I can manage a 60-month loan without straining my budget, it might make more sense to go with a shorter term to save on interest.
- How long do I plan to keep the car? If I plan to keep the car for a long time, an 84-month loan might make sense, as I’ll eventually pay off the car and no longer have a monthly payment.
- What is the total cost of the loan? It’s important to factor in the total cost of the loan, including interest. Sometimes a 60-month loan with higher monthly payments could be cheaper in the long run than an 84-month loan.
- Am I okay with the risk of depreciation? If I’m not worried about the car losing value quickly, I might be comfortable with an 84-month loan. However, if I plan on trading in the car before it’s paid off, the risk of owing more than the car is worth could be a problem.
84-Month Financing vs. Shorter Loan Terms: A Comparison
To better illustrate the difference between an 84-month loan and a shorter loan term, here’s a comparison table using the same car purchase example:
| Loan Term | Interest Rate | Monthly Payment | Total Loan Payment | Total Interest Paid |
|---|---|---|---|---|
| 60 months | 5% | $566 | $34,160 | $4,160 |
| 72 months | 5% | $477 | $34,344 | $4,344 |
| 84 months | 5% | $423 | $35,532 | $5,532 |
From this table, I can see that while the 84-month loan offers the lowest monthly payment, it also ends up costing me more in interest. In contrast, the 60-month loan is more expensive on a monthly basis but cheaper overall.
What Other Financing Options Should I Consider?
Before committing to an 84-month loan, it’s important to explore all available financing options. Here are some alternatives:
- Leasing: If I only plan to drive the car for a few years, leasing might be a better option. Leasing offers lower monthly payments and allows me to drive a new car every few years without worrying about the long-term ownership costs.
- Shorter Loan Terms: While the 84-month loan offers lower payments, I might be able to find a better deal with a 60-month or even a 48-month loan. The higher monthly payments might be more manageable than I think, and the savings in interest could be significant.
- Refinancing: If I’m already locked into an 84-month loan and want to save on interest, refinancing might be an option. If my credit has improved or interest rates have dropped, I may be able to refinance my loan for a shorter term or lower rate, saving money in the long run.
Conclusion: Should You Choose an 84-Month Car Loan?
An 84-month car loan can be a good option for some people, particularly those who need lower monthly payments or who plan to keep the car for a long time. However, the higher total interest cost and the risk of depreciation are significant factors to consider before making this decision. Ultimately, the choice depends on your individual financial situation, goals, and how long you plan to keep the car. By carefully weighing the pros and cons, you can make a decision that aligns with your financial needs.
