84 Month Auto Loans: The Good and The Bad

Written by Veronica Ott
Fact-checked by Caitlin Wood

84 Month Auto Loans: The Good and The Bad

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84 Month Auto Loan Car Loan

To make car loans more affordable for the average consumer, lenders have created extended auto loans that can be as long as 84 months. The longer the loan term is, the more your payments are spread out thereby making the monthly payments more affordable.

On the surface, cheap monthly car loan payments seem like a fantastic idea, so what’s the catch? In simple terms, the overall cost at the end of the day is more expensive than it needs to be and you’re essentially putting money into an asset that loses value at a rapid rate. To learn more about the pros and cons of 84 month auto loans as well as alternatives, keep reading.

What happens if your loan is more than your car is worth? Find out here.

84 Month Auto Loans: The Good

More often than not, it is unwise to sign up for an 84 month auto loan. Although, there are instances where an 84 month loan could benefit you. To start, let’s look at the advantages of 84 month auto loans.

• Small Monthly Payments. Because the loan’s term is so extended, the monthly payments are relatively cheap. The small monthly payments can fit into your budget easier.
• Existing Debt. If you have existing debt that you’re paying down, you may not be able to afford to add on another large payment every month. However, most consumers need cars for work and life, avoiding a car loan may not be an option. In this case, smaller monthly loan payments would work well on top of existing debt payments.
• The Best Car. If you have your eye on the newest car with all the bells and whistles, an 84 month loan may be the only way you can afford to make the purchase. If it’s important to you to have that car, an 84 month loan might be right for you.

84 Month Auto Loans: The Bad

Now that we know the benefits that come with a 84 month auto loan, let’s consider the negatives. Below is a list of all the disadvantages that come with 84 month auto loans.

• Negative Equity. The second you sign an 84 month auto loan, you will have negative equity on your car. This means you owe more than what the car is worth. The rapid negative equity status is attributable to the quick depreciation rates of cars. It’s best to have short repayment terms to keep your equity in the positive.
• Higher Interest Rates. When a loan term is longer than 60 months, the borrower automatically pays a higher interest rate. Not only is the interest rate higher, but the overall interest dollar amount you pay is increased because of the loan’s extended term.
• Payments on an Old Car. To put things into perspective, 84 months is equivalent to 7 years. Some cars, especially used ones, won’t last 7 years. If they do, they’ll be old and clunky, yet you’ll still be making payments on that car with an 84 month auto loan.
• Repairs and Maintenance. Older cars require more repairs and maintenance which, especially on top of your loan, is costly. It is ideal to have your car loan paid off by the time expensive repairs and maintenance are needed for your car. There also is no such thing as an 84 month warranty so the manufacturer can’t help you out when your car starts to age.
• Change in Financial Situation. An 84 month loan is a long term commitment. Your financial situation could change within that time which could jeopardize your car loan.
• Depreciable Asset. With few rare exceptions, cars never increase in value over time. For this reason, you shouldn’t pay an absurd amount of money since the car won’t increase in value over time. It is wiser to spend more money on assets that will appreciate in value, such as real estate.
• Unaffordable Car. If your lender or car dealer mentions an 84 month loan, it’s probably because you’re looking at a very expensive, top of the line, brand new car. Chances are, the car you want is out of your reasonable price range and more than you can comfortably afford.

Dealing with an expensive car repair that you can’t afford? Check this out.

Why Do Consumers Choose 84 Month Auto Loan Terms?

Every consumer is unique in terms of their wants, even within the car market. To some consumers, having the newest, sleekest car is a must. Often, for those borrowers, the only affordable way to purchase the car they want is by using an 84 month car loan.

Another reason consumers choose 84 month auto loans is for the general affordability. Borrowers that already have existing debt or can’t afford higher payments with their budget need to turn to 84 month auto loans. Keep in mind that if a consumer chooses an 84 month auto loan for affordability, it is usually out of necessity, not preferability. Many individuals need a car to work and live, and the only way to afford a car may be through an 84 month auto loan.

Not sure how large of a car loan you can afford? This article is for you.

More Affordable Alternative Options

Before making a final decision on a 84 month auto loan, it is wise to consider all the alternatives. When considering your options, be sure to find a balance between the car that you really want and a car that is affordable with your budget.

• Long Loan, Low APR. To make a car loan more affordable with an extended loan term, find one with a low APR. This way you’ll free up money to use elsewhere and won’t break the bank with your car purchase.
• Lease, Don’t Buy. When you lease a car instead of buying, you usually pay less upfront and have lower monthly payments. At the end of the lease, there is often an option to buy the car at the current market value.
• Large Down Payment. To avoid negative equity on a long loan, make a large down payment. In essence, you’re prepaying the depreciation on the car you buy.
• Avoid New Car Models. New cars are very expensive and lose their value rapidly once they’re purchased. Selecting an older model or used car will be easier on your wallet.

What to do if You’re Stuck in an 84 Month Auto Loan Term

If you couldn’t resist the glossy car and find yourself stuck in a 84 month loan, don’t panic, there are ways you can get yourself into a better financial situation. First, you should assess the situation and determine if you have negative equity or not. From there, you can use one of the below tactics to get yourself out of the bad loan.

• Refinance. Refinancing can get you more favourable terms that suit your budget better. Keep in mind that your credit should be in good shape before you try to refinance. Lenders don’t typically refinance unless you’re in the same or a better financial position (for more information about auto loan refinancing, click here).
• Higher Monthly Payments. The more money you put toward your loan, the faster it will get down to $0. You can either increase the amount you pay each month or increase the frequency of your payments, or both. This is a good tactic to eliminate negative equity as well.
• Lump Sum Payment. Have some extra cash? Making a lump sum payment toward your loan will put a dent in your debt. Be sure to check if your loan has early payment penalties to avoid pesky additional costs.

Final Thoughts

At the end of the day, 84 month auto loans are typically not the best financing choice available. The relatively cheap monthly payments are deceiving since the overall cost will be much more expensive. Not only that, but you don’t want to be stuck in a seven year loan, especially on an asset that is quickly declining in value.

To find an auto loan that suits your budget best and will contribute to a brighter financial future, reach out to Loans Canada today!