If you’re applying for car loans, you might already be looking forward to the freedom of having your loan paid off. But as you may have seen, shorter loan terms tend to come with high monthly payments.
If you’d rather give yourself more time to pay off your car, there’s an option you may not have considered — the 84-month auto loan.
What is an 84-month auto loan?
An 84-month auto loan is a car loan spread out over 84 months or seven years. It’s a much longer loan term than many auto loans — the average loan term for a new car loan is 69.44 months.
Thanks to that longer loan term, you’ll owe more in interest over time than you would with a shorter loan. But a longer loan like this is worth considering if your income is limited or if low monthly payments are a priority.
How to qualify for an 84-month auto loan
Because the monthly payments are lower than they would be with a shorter loan, 84-month auto loans tend to be easier to qualify for. To see whether you qualify, your lender will look at a few things:
- Your credit score: This is a priority for most lenders, and higher scores can unlock better interest rates.
- Your employment: Lenders also like to see stable employment — this makes it more likely that you’ll pay the loan back.
- Your debt-to-income ratio: Your income should be high enough that you can comfortably afford loan payments.
- Loan-to-value ratio: Consider selecting a car with a lower purchase price or making a higher down payment to help lower the loan amount.
If possible, get a copy of your credit report before you start applying. This can give you a better idea of what to expect from lenders.
Advantages of an 84-month auto loan
Longer loans have some advantages:
1. Lower monthly payments
Because your payments are spread out over a longer time, you’ll pay less per month.
2. More manageable budget
If you have a lot of other expenses each month, the smaller monthly payments free up more funds. Over time, that can lead to less financial stress.
3. Higher loan approval likelihood
Selecting a longer loan term would generally increase your chances of approval because the loan payments are more affordable.
4. Potential for long-term ownership
If you plan to keep the car you’re buying for a significant amount of time, the longer loan term is a great way to spread the cost out over time.
5. Option for refinancing
Interest rates can be unpredictable. If rates drop significantly after you take out the loan, you’ll have the option to refinance for a better rate.
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Factors to consider before getting an 84-month auto loan
An 84-month loan is a big commitment. Here are some things to consider before making a decision.
1. Interest rates
Higher interest rates cause you to pay more over time. But since an 84-month loan lasts for so long, high-interest rates will make an even bigger financial impact.
2. Monthly payments
Longer loan terms mean smaller monthly payments. But will you be able to afford to make your payment each month for seven years?
3. Total loan costs
High interest rates and other fees add up, especially with a long loan term. Before signing, use an auto loan calculator to see the total amount you’ll be paying.
4. Depreciation
If you choose a long loan term, there’s a chance that you will eventually be making payments on a car that’s worth a lot less than what you owe on your loan.
5. Resale value
Are you planning to sell the car once it’s paid off? If so, make sure you know the expected resale value after seven years.
6. Loan term flexibility
It can be helpful to know whether you can refinance or pay off the loan early without penalties.
7. Credit score impact
Loans have an impact on your debt-to-income ratio and your credit score. Take this into account if you anticipate needing to apply for credit again soon.
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8. Necessity vs. wants
Do you need an 84-month loan for the kind of vehicle you’re getting? If you want to upgrade soon, a short-term loan might make more sense.
9. Future financial situations
There’s no way to know what your financial situation will be in the coming years, so there’s a risk of not being able to make payments in the future.
Alternatives to an 84-month auto loan
If you choose a 36-, 48-, or 60-month loan, you might save thousands in interest. It can be helpful to use an auto loan calculator to find out how much you’ll pay over time for each loan type.
If you can, take some more time and save money for a larger down payment. If you can do this, you should be able to shorten your loan term.
If you aren’t already, consider purchasing a used car or one that’s more affordable. You also can look into the cost of leasing as opposed to buying.
Is an 84-month auto loan right for you?
If you want lower monthly payments and a more manageable monthly budget, a longer loan term might be the right choice. Just make sure you weigh the benefits against the cost you’ll pay over time.
Buying a vehicle is a pivotal decision, and taking advantage of the resources available to you can help. For more tips check out all that MoneyLion has to offer.
FAQ
Can I pay off an 84-month auto loan early?
Usually, yes. But some loans have prepayment penalties, so always check before you take one out.
Is it easier to qualify for an 84-month auto loan compared to a shorter loan term?
It often is. Because monthly payments over a longer loan term are smaller, an 84-month loan term is more affordable for car buyers with limited income.
What happens if I want to sell or trade in my car before the 84-month loan term is over?
If you owe than the trade-in value, that balance could be rolled into your new car loan. However, most experts suggest either paying off your car or paying down your loan significantly before trading in.
