In the world of auto financing, car owners always come across different options to choose from, especially when it comes to meeting their lifestyle and budget. However, the high price of cars and inflation can discourage car owners’ decisions, making them consider taking out an auto loan. One of the popular loan options is an 84-month auto loan.
This loan option attracts the attention of drivers who aim to drive home a pricey car or vehicle or need low monthly payments. Nevertheless, this complicated financial arrangement comes with advantages and disadvantages.
What is an 84-Month Auto Loan?
An 84-month auto loan, also known as a 7-year loan, is a financial instrument for car owners interested in buying a car or vehicle where they will agree to pay back the loan within 7 years or 84 months.
Unlike a short-term loan, the extended term of this loan type allows you to repay the loan in affordable amounts monthly over a specific timeline. However, you will pay more interest over the loan’s lifespan as well.
How Does It Work?
Firstly, the borrower or car owner will have to agree to pay back the loan over 84 months. Secondly, the loan amount, your credit score, and the market condition will be used to determine your interest rate.
On the other hand, the monthly payments are calculated considering the term length, loan amount, and interest rate. Lastly, the total cost of the loan is the interest rate paid over the loan term and the principal amount borrowed.
Pros and Cons
Here are the benefits and drawbacks of taking out or applying for an 84-month auto loan:
Pros
- Cash flow flexibility.
- Lower monthly payments.
- Potential tax deductions.
- Suitable for borrowers with low credit scores.
- Easier budgeting.
- Ability to pay for more expensive cars.
Cons
- Risk of default.
- Higher total interest paid.
- Detained ownership.
- Negative equity.
- Potential negative credit impact.
- Higher interest rates.
- Limited warranty coverage.
- Resale value.
- Limited loan options.
When to Consider an 84-Month Auto Loan
Here are the best times to take out or consider an 84-month auto loan:
- If You Are in Need of a Reliable Car: If, because of higher monthly payments, you are not able to afford a reliable car, you might want to consider an 84-month auto loan.
- Limited Budget: Longer loan terms to make payments are a good idea if you have a tight budget.
- Have Plans to Keep the Car Long-Term: If you have plans to hold onto the car or vehicle for its whole lifespan, a longer loan term may be beneficial.
- Stable Financial Situation: If you are stable financially and you are sure that it will not change, you can take out this type of loan.
- Low-Interest Rates: When the interest rates are low, prolonging the repayment loan term is a good idea in the long run.
When to Get an 84-Month Auto Loan
Here are the worst times to ever consider taking out an 84-month car loan:
- High-Interest Rates: If you are eligible for high interest rates, the long-term cost of an 84-month loan might be restricting.
- Short-Term Vehicle Needs: If you only need the car for a few years, it is advisable to go for a loan with a shorter term.
- If You Want Equity: If you would like to build equity in your car faster, do not consider an 84-month car loan.
- Uncertain Financial Situation: For borrowers whose expenses or income are unpredictable and unsure, it is wise not to take out a long-term loan.
- Depreciation Concern: Consider a short-term loan if you are worried about the depreciation of a car or vehicle.
Should I Get an 84-Month Auto Loan?
The answer to this question lies in your hands. Most of the time, taking out an 84-month auto loan is not always the best option. This is because they are usually very expensive over time as a result of interest fees, even though they keep your monthly payments low and affordable.
Alternatives to 84-Month Auto Loans
If you are not able to take out or do not qualify for an 84-month auto loan, here are some available alternatives that you can consider:
- 72-month loan
- 60-month loan
- Increasing down payment
- Leasing
- Go for used cars
- Adjust your budget
- Consider a cheaper car
- Wait and save
Even though an 84-month auto loan is an affordable option when it comes to buying a car or vehicle in the short term, there are higher risks and long-term costs.
This is why you need to be extremely careful when it comes to considering your plans, financial situation, and available financial options. If you need help, you can reach out to a financial advisor.
