Is An 84 Month Car Loan A Bad Idea?

My Experience With 84-Month Car Loans

As a car blogger who has been following the automobile industry for years, I have seen more and more car buyers take out 84-month car loans. While I understand the appeal of lower monthly payments, it is important to think about the long-term financial impact of such a decision. In my opinion, taking out an 84-month car loan can be a risky choice that can lead to unexpected costs over time.

Why an 84-Month Car Loan May Seem Appealing

When you are shopping for a new car and considering financing options, an 84-month car loan may seem like a great idea. After all, payments are lower and more manageable on a monthly basis, which might be attractive to buyers who are on a tight budget. Additionally, many dealerships offer these loans with low interest rates, which might seem like an even better deal.

The Dangers of Taking Out An 84-Month Car Loan

While an 84-month car loan might seem like a great way to save money, it is important to consider the potential dangers associated with such a decision. First and foremost, the interest will add up over the life of the loan, which means you could be paying significantly more in interest than the actual cost of the car. Additionally, an 84-month car loan might put you in a position where you are upside-down on your car loan, meaning you owe more than your vehicle is worth.

Some of the major dangers of taking out an 84-month car loan include:

• You will pay more interest over time
• You will be liable to paying more for the loan than the actual value of the vehicle
• You may end up in a negative equity position
• You might face higher repair costs as your car gets older

How Interest Adds Up Over The Life of an 84-Month Car Loan

When you take out an auto loan, you agree to pay interest on top of the cost of the car over the life of the loan. This interest rate can vary depending on your credit history and other factors. With an 84-month car loan, you will be paying interest for a longer period of time, which means that the total amount of interest you pay will be much higher than if you had taken out a shorter-term loan.

For example:

If you take out a $20,000 car loan with a 5% interest rate and a term of 60 months, your monthly payment would be around $377 per month. Over the life of the loan, you would pay approximately $2,624 in interest.

On the other hand, if you take out a $20,000 car loan with a 5% interest rate and a term of 84 months, your monthly payment would be around $268 per month. However, over the life of the loan, you would pay approximately $5,208 in interest.

As you can see, the interest you pay over the life of an 84-month car loan can add up quickly.

Why You Might End Up Upside-Down on Your Car Loan

Another danger associated with taking out an 84-month car loan is that you might end up in a negative equity position. This occurs when the amount you owe on your car loan is greater than the actual value of the vehicle. This can happen quickly, especially if the car depreciates faster than you can pay off your loan.

For instance, if you take out an 84-month car loan and you buy a car that is valued at $20,000 at the time of purchase, your loan balance will be around $26,000 after seven years, assuming a 5% interest rate. However, after seven years, the car might only be worth $10,000 or $12,000. This leaves you in a negative equity or “upside-down” position.

Considering The Long-Term Financial Impact of An 84-Month Car Loan

Before you make a decision about taking out an 84-month car loan, it is important to consider the long-term financial impact of your decision. You need to consider your personal financial situation and determine if you can afford the monthly payments over such a long period of time.

Here are some things to keep in mind:

• An 84-month car loan will result in lower monthly payments, but you will pay more in interest over time.
• You may be liable to paying more for the loan than your car is worth, which can be dangerous if you need to sell or trade in the vehicle before the loan term is complete.
• You might face higher repair costs as your vehicle ages, which can be difficult to manage if you are still making payments on it.
• You need to be sure that you can afford the monthly payments over the long haul, as you may not be able to refinance or change the loan terms once you have signed the paperwork.

The Benefits of Choosing A Shorter Term Auto Loan

While an 84-month car loan might seem appealing, there are many benefits to choosing a shorter-term auto loan. Shorter-term loans may have higher monthly payments, but the interest rates are usually lower. Additionally, you will pay less interest over time and may be able to pay off the loan earlier, which can free up cash flow for other expenses.

Here are some of the benefits of choosing a shorter-term auto loan:

• You will pay less interest over time
• Your loan term will be shorter
• You may be able to pay off the loan earlier, freeing up cash flow for other expenses
• You are less likely to end up in a negative equity position

Saving Money By Choosing A Shorter Loan Term

If you are considering financing a car, it is important to think about the long-term costs and benefits of a loan. In most cases, taking out an 84-month car loan is not the best financial decision. While you might be attracted to the lower monthly payments, the total cost of the loan may be much higher than you had anticipated.

If you are serious about saving money and making a smart financial decision, consider choosing a shorter-term auto loan. Not only will you pay less interest over time, but you will also have the opportunity to pay off your loan earlier and free up cash flow for other expenses.