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84 Month Auto Financing – Right for You?

With the average price of a new vehicle skyrocketing over the $30,000 mark, it can be very tempting to finance a car for as long as possible in order to keep the monthly payments down. Of course, there are pros and cons to everything. Here are a few of the pros and cons of 84 month auto loans.

The Pros

With 84 month auto financing there is one primary advantage, but it’s a significant one for many consumers:  a lower monthly payment. For example, if you are financing $22,000 at seven percent and opt for a 48 month note, the monthly payments would be $526.82. Extend that same loan to 84 months and the payment drops to $332.0–that’s nearly $200 less for a car that costs the same! Obviously, that makes the loan more affordable and may allow you to buy more car than you could otherwise afford, which can be both good and bad.

 

The Cons

The list of cons of 84 month auto financing is more varied, so let’s dive right in.

  • Total Interest Paid…with the loan mentioned above, you will pay $5,891.27 in interest over the life an 84 month loan. Cut the loan back to 48 months and you only pay $3,287.23. So, while you pay $200 less per month, you pay $2500+ more in the end, making your vehicle cost about 10% more.
  • Higher Interest and Negative Equity…the two go hand in hand. You will be asked to pay a higher interest rate for two reasons. One is the higher risk associated with a longer loan term on a depreciating asset. The second is that the asset depreciates quickly; therefore, you will have negative equity in the vehicle for at least the first three years of the loan.
  • Gap Insurance…you may be required to carry additional insurance to cover the negative equity in your vehicle. If your vehicle is totaled during an accident during the first three years, there is a real possibility that you will owe more than the car is worth to an insurer. Gap insurance policies cover the remaining balance so that lenders are not left holding a lien against a non-existent asset. These policies are considerably more expensive than ”normal” car insurance policies.
  • Credit Score…as a general rule of thumb, the longer you want a loan term to be, the higher your credit score needs to be. An 84 month loan often requires an excellent(above 720) credit score.

All of the pros and cons of 84 month auto financing center around money. If you weigh them against each other, you can see that the cons could quickly outstrip the pros, dipping deeper into your pockets that you may have thought.