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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 is passionate about helping others learn how to live life more fully. His writing has been featured in a variety of publications such as U.S. News & World Report, USA Today, Yahoo! Finance and numerous others. 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 take control of their finances by providing precise, well-studied and well-documented information that breaks down otherwise complicated subjects into digestible pieces. The Bankrate promises
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We receive compensation for placement of sponsored products andservices or when you click on certain hyperlinks on our site. Therefore, this compensation may affect the way, location and when products are listed and categories, unless it is prohibited by law for our credit, mortgage, and other products for home loans. Other elements, such as our own proprietary website rules and whether a product is offered in the area you reside in or is within your own personal credit score could also affect how and when products appear on this site. While we strive to provide the most diverse selection of products, Bankrate does not include details about every credit or financial products or services. The longer terms will mean lower monthly payments on the auto loan. They can have some benefits for the right buyer -however, you should expect to pay more overall. Therefore, before you decide for an 84-month contract be aware of the trade-offs and other options. What exactly is an auto loan? In essence, they’re the same as any auto loan. An auto loan stretches the repayment period up to 7 years. The lender amortizes your loan over this term to determine the amount you have to pay each month in interest and principal. For example, consider a $20,000 auto loan with a 3.49 percent rate of interest. If you choose to go for a 60-month payment term then your monthly installment is $364. You can extend the term to 84 months, though, and your monthly payments would decrease to $269. The 60-month option would only cost you the sum of $1,825 for interest. As there’s more than enough time to allow interest rates to pile up, an 84-month period is naturally more expensive: You’ll wind up paying $2,571 — nearly $750 more. There are a few reasons to stay clear of the 84-month auto loans While a longer loan period means a lower monthly payment, it could be trouble in the future. Here are some potential pitfalls to be aware of: More expensive While your monthly payment are lower when you have an extended term, the total interest charged will be more expensive. However much or how little you borrow it, you’ll pay more in interest with a longer loan. This may not be enough to be a deal breaker when faced with a lower monthly installments each month, but it’s money that can be spent elsewhere. In addition, 84-month car loan rates are generally more expensive because they are riskier for lenders. That’s even if you’re offered the option even at all. Depreciation On average an automobile that is brand new can drop more than 10% of its value in the first month after you take it off the dealership according to . It’s possible to lose 20 percentor more within the first year, and 60 percent within the 5th year. With a lower monthly payment and a higher chance of . If you decide to sell your vehicle or have it damaged, you’ll have to pay the difference out of pocket. Repair issues : The older the vehicle, the more costly the repairs are. If you have an 84-month contract it’s more likely that you’ll have a greater chance of having to pay for repairs while you still have a monthly payment. If you have a tight budget and low reserve, it can be a major strain on your budget. Expiring warranty new cars that offer long warranties, but the majority are at least three years, or 36,000 miles. If you take out an 84-month loan you’ll be paying off your vehicle long after the warranty expires. Avoid a loan duration that is longer than the length of your car’s warranty. If you’re getting a , you likely won’t have a warranty to worry about. This makes the expected depreciation and repair costs average more crucial, so do not skimp on your research. Kelley Blue Book and Edmunds each have estimates of the total cost of ownership that are higher than the general repair costs which are covered under a warranty. Benefits of an auto loan There isn’t all negatives and doom. There are some advantages to an 84-month term you should look at: Lower monthly payment. Seven years is a long period which means you are able to take out more loans and still enjoy a fairly affordable monthly cost. If you have a tight budget the 84-month period could aid in keeping monthly costs low. Lower debt-to-income ratio. With an 84-month car loan and monthly payments, your expenses will be less than your earnings. A low rate could allow you to be more eligible to get future loans. Low rates. If interest rates are low it’s logical to borrow money as long as is possible. It is possible to use the money to cover more expensive loans. Just know that the 84-month auto loans are more expensive as compared to automobile loans with shorter terms. When to consider an 84-month loan for your auto loan There are situations where you are on a tight budget or do not have plenty of time to negotiate with a dealer. If you are limited in the options that are available, a longer-term auto loan could be the most suitable choice. A longer-term loan is the only way to incorporate monthly payments into your budget. There’s no penalty for in the event that you pay off your vehicle loan is paid off early. The duration of the loan lets you afford a better, more reliable car. Your vehicle is covered by a lengthy warranty that will reduce overall repair costs. You could be eligible for a low-interest rate and want to invest the difference for more return on your investment. Other auto loan options Use an to understand what a longer term 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 option, there are alternatives to consider: Wait and save. If you’re stuck on an exact model but are unable to pay for it with a longer term look into waiting until you’ve accumulated enough cash for a higher down cost. Make use of an auto loan to find out how much it can cut your monthly installment. Opt for a cheaper car. If you aren’t able to save for a larger down payment, consider changing your expectations to a lower-cost car that lets you finance it for a shorter time. Look for a place within your financial plan. If you haven’t already, take a look at your expenses and income over the last few months to determine the areas you could cut back on your spending in order to accommodate the higher monthly payments. Lease instead of buying. Have shorter terms than auto loans generally about three years according to . Despite having a shorter duration however, they are able to pay lower monthly costs because they’re based on the vehicle’s depreciation and not its sales price. What should you consider when choosing an auto loan term length ? Consider what you’re financing as well as the interest rate and your budget. It’s not uncommon for buyers to choose longer terms for their auto loans However, it’s not worth compromising to pressure from sales. The shorter you can get your auto loan duration, the more beneficial. It’s not just a way to guarantee that you pay lower interest, but it can also result in paying off the loan sooner. This means that you’ll have extra money each month to put toward other debts and expenses. If you won’t be capable of paying a greater monthly payment, you can choose to take a longer repayment term in the beginning and later as your budget permits. If you’re lender doesn’t charge a prepayment cost, you can also take care to pay back your loan early and save money on interest. As you consider term lengths take your current financial situation along with your needs and long-term goals in your mind. There isn’t a loan length that’s ideal for everyone, so understanding your financial situation will allow you to find the best path forward. In the end, although you’ll pay less monthly for an 84-month auto loan, you’ll ultimately pay more in interest. There’s also the risk of paying more for the loan than your car is worth and could incur huge repair costs. When deciding on a longer auto loan duration, think about a shorter term to save more overall. Find out more
Written by a contributing writer Ben Luthi is a personal writer of travel and finance who loves helping people learn how to live life completely. His work has appeared in a variety of publications that include U.S. News & World Report, USA Today, Yahoo! Finance and more. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances by providing precise, well-researched and well-researched information that breaks down complex topics into manageable bites.
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