Should You Get an 84-Month Auto Loan?

Quick Answer

Auto loans with 84-month terms can be a way for car buyers with limited financial options to finance a car. But while they can lower your monthly payments and make buying a car more affordable in the short term, they also have a higher total loan cost.

Woman Considering Buying a Car

Car buyers discouraged by inflation and high car prices may be looking for ways to get a car loan and still make ends meet. Enter the 84-month car loan. Getting a car loan that allows you to repay the balance over seven years can reduce your car payment and possibly get you into a more expensive car. But before you get an 84-month auto loan you should consider interest rates, total loan costs and your financial situation. Here's what to know.

Benefits of an 84-Month Auto Loan

Longer-term car loans have become more popular in recent years. In fact, the majority of new car loans have terms in the 72- to 84-month range, according to Experian's State of the Automotive Finance Market report from Q3 2022.

Stretching out your repayment schedule over seven years has certain advantages, including the following.

Lower Monthly Payments

Choosing an 84-month auto loan can lower your monthly car payments significantly compared with, say, a three-year or even five-year loan. This can allow you to buy a car that might not otherwise fit your budget.

Higher Loan Amount

Sometimes a longer-term loan is the only way to ensure you get a quality vehicle that doesn't have any nasty surprises hidden under the hood. A new or certified preowned car may cost more, but an 84-month loan may allow you to afford the higher amount, since your payments will be stretched out over a longer period of time.

Early Payoff

Many lenders let you pay off your car loan early without any additional fees. You can pay larger installments over the course of the loan if your financial situation allows for it, reducing the high interest costs you'd pay if you took the full seven years to pay off the loan. Additionally, if things go south and you find yourself in a tough spot financially, you can go back to making minimum payments on the loan.

It's important to check the terms and conditions before agreeing to a loan. If you are able to pay off the debt earlier, an 84-month loan might be a good idea.

Drawbacks of an 84-Month Auto Loan

A general rule of thumb is the longer the duration of the auto loan, the more it should be avoided if there are any alternatives you can afford. Let's take a look at a few reasons why an 84-month loan might not be the best choice for you.

Paying More in Interest

Taking out an 84-month car loan, just like any other long-term loan, is usually not cost-efficient because of the total interest you'll pay over the life of the loan.

Suppose you buy a $25,000 car with no down payment at 5% interest. The interest you will pay over the course of an 84-month loan amounts to $4,681, bringing the total paid to $29,681, according to Experian's car payment calculator. In comparison, a similar loan with a 36-month term will have higher monthly payments, but the total interest charge amounts to only $1,974, or nearly $3,000 less than its 84-month equivalent.

Car Depreciation

A car often loses as much as 20% of its value in the first year. If you took out a loan on a brand new car, over the course of the loan, the amount you owe may be higher than the value of the car itself. This situation is often referred to as being upside down or havingnegative equity on your auto loan.

Negative equity can become a real problem in certain situations. If you decide to sell your car, or trade it for a newer model, a dealer will only offer how much the vehicle is worth, not how much you still need to pay. Additionally, if you end up in an accident where your car is totaled, even though you no longer have the vehicle, your insurer will only reimburse you for how much the car is worth. You will still be expected to pay the difference on the loan.

Repair Issues

Unless you opt for a more comprehensive package, most cars come with a basic factory warranty of three years or 36,000 miles (whichever comes first). With a loan lasting longer than 36 months, chances are you will find yourself without a warranty for part of the loan's duration if you don't purchase an extended warranty. If you end up having issues with the vehicle and require repairs, these will need to be covered out of pocket, adding to the amount you already have to pay monthly.

Alternatives to an 84-Month Auto Loan

If you're in a position where you're looking to get an 84-month loan but are not entirely sold on the idea, you might want to consider some alternatives. Let's take a look at a few:

  • Saving up: If you're not in urgent need of a vehicle, saving up for a larger down payment or shorter loan term can be a good way to go.
  • Improving your credit score: As your credit score goes up, the number of options you have increases accordingly. Long-term loans are usually targeted at people with limited options due to a less-than-stellar credit score. Before applying for a loan, be sure to take a look at ways to improve your credit score.
  • Finding a more affordable car: If the only way of getting a brand-new car from the dealership is with the help of an 84-month loan, then you might rethink the decision. The smell of a new vehicle is tempting, but it might turn into a financial nightmare in the long run. Shop around and see if you can get the best of both worlds, price and quality-wise, although it might sometimes take a little bit of flexibility.

The Bottom Line

Choosing whether or not to apply for a loan is a big decision, especially if it's a long-term commitment. Before making a final decision, be sure to consider the pros and cons of loan terms, including whether an 84-month loan is your best option.

Preparing for the loan can make a significant difference in cost. By taking steps to improve your score, for example, you may be able to access a wider range of loan offers, often at lower interest rates. One way to possibly get an instant credit score increase is with Experian Boost®ø™. This feature adds monthly bills you already pay, such as eligible rent, phone and streaming payments, to your Experian credit report. Your history of on-time payments could result in an immediate credit score increase.