With auto loan payments becoming expensive, more car owners are looking to save by taking 84-month auto loan terms. But will you really save in the long run, and when should you choose such an option?
One of the biggest doubts you will have when buying a car is what loan term to sign up for. After all, new cars don’t come cheap – and your default thinking is to reduce your monthly payments as much as possible and stagger the interest over the long term. If lenders sense this, they may push you to sign up for an 84-month loan.
You won’t be the first to accept – data from Experian shows that more than 25% of auto loans in America consist of 72- or 84-month loans! So should you really consider a long-term loan as a viable financing option?
What is an 84-month auto loan?
An 84-month auto loan is one of the longest loan terms provided by auto lenders. While some lenders even offer 96-month loan terms, 84 is the most widely accepted upper limit. The benefit of such a long term is that you can spread out the monthly payments in an affordable way. This is most useful for people with low incomes or those who are self-employed and do not have a stable income.
An 84-month loan term gives you the benefit of the lowest monthly payment in the market, which you can repay over the course of 7 years. However, there is also a significant risk – you will have to pay much more as interest in the long run.
What is the average car loan length?
The average car loan length as of 2022 is roughly 69 months (or almost 6 years). That means a significant number of car owners have signed on for longer loan terms in the range of 60-84 months.
Do 84-month auto loans have lower interest rates?
Not necessarily. The interest rate for your auto loan depends on various factors like your credit score, payment history, debt-to-income ratio, and more – besides the loan term. Interest rates can vary from 3% for those with excellent credit to as high as 20% if you have poor credit. If your interest rate is on the higher side, it’s always best to avoid an 84-month term as you could rack up very high interest.
How much interest do you pay on an 84-month car loan?
Let’s understand this using an example. Imagine you’re planning to buy worth $40,000, with a down payment of $5000. You intend to borrow the remaining $35,000 from a lender at 5% APR but are confused about what loan term to choose.
Using an auto loan interest calculator, you can find amortized monthly payments and the total amount of interest you will pay for various loan terms starting from 12 months to 84 months.
| Loan Term | Monthly Payment | Total Interest Paid |
| 12 months | $2996 | $955 |
| 24 months | $1535 | $1851 |
| 36 months | $1048 | $2763 |
| 48 months | $806 | $3689 |
| 60 months | $660 | $4629 |
| 72 months | $563 | $5584 |
| 84 months | $494 | $6553 |
As you can see from the table, an 84-month car loan has a lower monthly payment, which can seem pretty tempting to take. However, you will pay a whopping $6553 as interest charges in the long run! The average monthly payment in the US today is roughly around $650 – which corresponds to a 60-month loan term. So it’s best to stick to within 60 months to get optimum value from your loan.
Pros and cons of 84-month car loans
Benefits
- It offers you the lowest monthly payment compared to all the other loan terms
- Lenders may be willing to reduce your APRs if you agree to a longer loan term
- It makes sense to take a long loan term if you intend to own the car for more than 7 years
Drawbacks
- You will pay more in interest charges in the long run
- The car may depreciate faster than you can repay the loan, leading you into an ‘upside-down’ car loan
- It is more expensive in the long run
- You will have to bear the expenses of costly repairs that occur beyond the warranty period
Is it a good idea to take out an 84-month loan for a used car?
No, it is not recommended to buy a used car with an 84-month loan, because used car rates tend to be higher than new car loan rates. According to Experian, the average new car loan rate in the US is 4.05%, while that for used car loans is 8.67%.
Also Read: Does a 72-Month Loan Make Sense for Your Finance?
Can you refinance an 84-month auto loan?
Yes, one way out of a long-term car loan is to refinance it to a shorter term by applying with a new lender.
Recommended providers of 84-month auto loans
Prominent lenders who offer 84-month car loans include:
- PenFed Credit Union
- LightStream
- Consumers Credit Union
- Chase Auto
- myAutoLoan
- Autopay
Alternatives to an 84-month auto loan
In some cases, your lender may not offer you an 84-month loan, and your APR may be too high for a short-term loan to make sense. If you still want to buy a vehicle for daily use, then these are some alternatives:
1. Try getting a co-signer
Having a co-signer onboard can help you qualify for a better rate or loan term. The co-signer’s credit score will be factored in when the lender analyzes your profile.
2. Buy a used car instead
Used cars have higher interest rates due to the reduction in the value of the car and increased risk of breakdown after a few years. However, they will be easier to finance because of the lower loan amount you need to borrow.
3. Lease a car instead of buying one
If you don’t have enough money to buy a car outright or to take out a new loan, leasing one is a good option. That way, you can drive a car for a few years and then buy it out at the end of the lease period.
Frequently Asked Questions (FAQ)
Is an 84-month car loan okay?
Ideally, you should only choose an 84-month loan if you are okay with the idea of paying more interest in the long run. While it is true that you will not feel the pinch of expensive monthly payments, you will lose more money than if you picked a short-term loan.
Do banks allow 84-month auto loans?
Yes, you can sign on for an 84-month loan with banks, credit unions, dealerships, and private lenders. Rather than signing on for the first long-term loan you get, shop around with multiple lenders, compare the loan rates and terms, and choose one that offers the best balance between affordability and convenience.
Is a 7-year term too long for a car loan?
There is no loan term that is ‘too long’ or ‘too short’ when purchasing a vehicle – it all depends on your ability to repay the loan. If you feel like you’d rather save in the short term through low monthly payments, then a 7-year term makes sense. You will pay much higher interest – but it could be a fair price to pay for having affordable payments every month.
What does 0% financing for 84 months mean?
0% financing simply means that you won’t have to pay any interest on your auto loan. While it seems pretty tempting, it is very hard to qualify for. Very few lenders offer 0% financing deals, primarily because not charging interest takes away their profit margins. In fact, they will be losing money given the inflation every year! Therefore, 0% financing is only offered to borrowers with excellent credit scores – 740 and above.
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