Should you get an 84-month auto loan?
The total cost of financing for 120 months is lower than 84 due to the compounding of interest. The best way to think about this is to compare a 120-month loan with a 48-month loan at the same interest rate. The only reason to choose the shorter-term loan would be if you needed to trade the car before the longer-term 120 bills were paid off.
When to consider an 84-month auto loan
If you’re sure, you want to keep your car long enough to make the full 84 payments. But if you need a new car after 70 payments, you will have paid more for your new car than the difference between it and the 120-month loan. Therefore, unless you really want to be done after 84 months, which means a total of 98 payments, the 120-month loan is your best bet.
Risks of an 84-Month Auto Loan
Still, the longer-term loans can carry a risk because you’re overpaying on interest for your car, and if you have a job that requires you to drive every day and get in an accident, you may not be able to make your payments. Yet, if you know, you will need a new car before 70 payments and/or you have a job that requires you to drive to work every day, the longer-term loans mitigate risk for you.
The only time you would consider 84 months is if you had sufficient savings to tap into to buy a new car. Of course, you know that a 120-month payment for your second car brings its own risks, and keeping the cars longer than six years is risky in and of itself. The bottom line is that if you’re OK with rolling the dice on potential risk, ready to have a new car every 70 payments or so, and can afford to lose out on interest if you really need to or want to trade before 84 months are up that’s fine but don’t forget that 60-month loans offer 30% lower payments and total cost of ownership regardless what rate you qualify for.
Alternatives to an 84-Month Auto Loan
The most fundamental way to minimize risk is to get an 84-month loan. If you decide you don’t want your current car any more than 6 years and have the cash to buy a new car at some point, which will maximize your down payment return and minimize the negative effects of depreciation, that’s better for the environment anyway. You may also want to consider going to a credit union or community bank. They are often willing to work with you and give you low rates and very favorable auto loan terms. If you are not sure, ask your friend or relative if they use one. Finally, have the financial freedom to consider trading in your car if necessary, but then again, that’s not something everyone is capable of. The bottom line, if you want to keep your car longer than 6 years and financing for 84 months makes sense for you, go for it, but please ask yourself whether using cash and a 60-month loan will cost less. Sometimes going green has financial benefits too.
Why Do Consumers Choose 84 Month Auto Loan Terms?
The automatic assumption is that consumers choose 84-month auto loan terms because they can’t afford higher monthly payments, or maybe it’s the only payment they can afford. That certainly happens as well, but people often choose longer terms for their new vehicle to hedge against the risk of default. The thinking is simple: If you think you’re going to need another car in 3 years and you know from experience that means seven years before the car is paid off, then the longer-term makes perfect sense. It’s a strategic move to secure budget certainty and/or not extend your current loan and save for the next car.
How to Apply for the 84 Month Auto Loan?
The 84-month auto loan application process is basically the same as applying for a 12 or 60 or even 84-month loan. You go to a dealership or elsewhere, and they will ask all the normal questions:
- How much do you make?
- How much can you afford?
- How much money down?
- What’s your credit score?
- What’s your payment history on
Requirements for an 84 Month Auto Loan
- Proof of down payment money from your bank or certified check
- Proof of income for verification.
You must prove that the banker will have a clear idea about how much your salary and income source is.