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Should you consider taking out an auto loan? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. We also allow you to conduct research and compare data for free - so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website come from companies who pay us. This compensation may impact how and where products are displayed on this website, for example, for example, the order in which they be listed within the categories of listing in the event that they are not permitted by law. Our mortgage, home equity and other products that lend money to homeowners. This compensation, however, does have no impact on the content we publish or the reviews that you see on this site. We do not cover the universe of companies or financial offers that may be open to you. SHARE: Standret/Shutterstock
5 min read Published March 02, 2023
The article was written by Ben Luthi Written by Contributing writer Ben Luthi is a personal finance and travel writer who loves helping people understand how to live their lives more fully. His work has appeared in a variety of publications that include U.S. News & World Report, USA Today, Yahoo! Finance and numerous others. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances through providing precise, well-studied and well-documented facts that break down complicated topics into bite-sized pieces. The Bankrate guarantee
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We are compensated in exchange for the placement of sponsored products or services, or through you clicking certain hyperlinks on our website. So, this compensation can impact how, where and in what order items appear within listing categories and categories, unless it is prohibited by law. This is the case for our loan products, such as mortgages and home equity and other home loan products. Other factors, like our own rules for our website and whether or not a product is available within your area or at your self-selected credit score range can also impact how and where products appear on this site. We strive to provide a wide range offers, Bankrate does not include details about every financial or credit product or service. The longer terms will mean lower monthly installments on an auto loan. They may offer some advantages for the right buyerhowever, you should be prepared to pay more in the end. Before you choose for an 84-month term be aware of the trade-offs and other options. What exactly is an auto loan? They're basically identical to any other auto loan. A auto loan stretches the repayment period by seven years. The lender will amortize the loan over this term to determine the amount you'll pay each month in interest and principal. For example, consider an auto loan with a 3.49 percent rate of interest. If you opt for a 60-month repayment term, your monthly payment would be $364. Extend that period to 84 months but your monthly payments would decrease to $269. However, that 60-month period would only cost you 1 825 dollars in interest. Since there's more time for interest to stack up, an 84-month term is more expensive. You'll wind up paying $2,571 -- nearly $750 more. Reasons to avoid the 84-month term of auto loans Although a longer auto loan term means lower monthly payments but it can be a problem in the future. Here are some possible pitfalls to be aware of that could cost you more. While your monthly payments will be less with the length of the loan, the total interest charged will be more expensive. No matter how much or how little you finance it, you'll pay more in interest with a longer loan. This may not suffice to be an issue when you're faced with a lower monthly payment every month however this is money that could be spent elsewhere. Not only that the 84-month loan rates are generally higher due to the fact that longer-term loans are riskier for lenders. And that's if it's offered at all. Depreciation On average an automobile that is brand new can lose more than 10 percent of its value in the first month following your drive it off the lot according to . The loss can be as high as 20 percent- or more -- during the first year and 60 percent in the fifth year. If you pay a smaller monthly amount and a higher risk . If you decide to sell the vehicle or have it completely destroyed, you'll have to pay the extra cost out of pocket. Repair problems The older the vehicle is, the more expensive the repairs will be. If you have an 84-month contract is a higher likelihood that you'll have to shell out for the repairs even though you have the monthly installment. If you have a tight budget and low emergency reserves, it could be a major burden on your budget. Expired warranty There are some new cars that offer long warranties, but the majority are three years or 36,000 miles. If you take out an 84-month loan you'll be paying off your vehicle long after the warranty expires. Avoid a loan duration that is longer than the duration of your vehicle's warranty. If you're getting a , there's a good chance you won't have a warranty to be concerned about. This makes expected depreciation and repair costs average more crucial, so make sure you do your homework. Kelley Blue Book and Edmunds both have estimates on the total cost to own which go beyond the normal repairs that are covered by warranties. Benefits of an 84-month auto loan There isn't all doom and gloom. There are some benefits of the 84-month period that you should consider: Lower monthly payments. Seven years is an extended period and you could take out more loans and still enjoy a fairly small monthly expense. If you're on a tight budget and a 84-month contract could reduce monthly expenses. Lower debt-to-income ratio. If you take out an 84-month auto loan, your monthly payments will be less than your income. Also, a lower rate can allow you to be more eligible for future loans. Competitive rates. When interest rates are at a low it is logical to borrow money as long as possible. It is possible to use the money to cover more expensive loans. Make sure you know that auto loans will have higher rates over loans with shorter terms. loans with shorter time frames. When to consider an 84-month car loan There are situations where you're on a budget or do not have plenty of time to negotiate with a dealer. If you're faced with a limited selection available, a long-term auto loan might be the best alternative. A longer-term loan is the only way to fit the monthly installments into your budget. There's no penalty for if an auto loan is paid off early. The duration of the loan enables you to afford a better, more reliable vehicle. Your vehicle is covered by a lengthy warranty, which reduces overall repair costs. You could get a lower interest rate and want to invest the difference for a better return on your money. Other auto loan options Use an to get an idea of what a long-term contract will cost you. If you're not certain if a longer term is right for you, even with the most favorable 84-month term, here are some alternatives to consider: Wait and save. If you're stuck on a specific model but can't pay for it with a more long-term look into waiting until you've accumulated enough cash to pay for a larger down payment. Use the auto loan to find out the amount it could cut your monthly installment. Opt for a cheaper car. If you don't have time to save for a larger down payment, you might want to change your priorities to a less expensive vehicle that can be finance for a shorter term. Make room in your budget. If you haven't already taken a look at your income and expenses over the last few months to determine whether there are areas in which you can cut back in order to accommodate an increased monthly payment. Buy instead of leasing. Have shorter terms than auto loans generally about three years, according to . Despite the shorter term, they have lower monthly costs due to the depreciation of the vehicle, not on the sale price. How do you choose the right auto loan term length ? Consider what you're financing, the interest rate along with your spending plan. It's not uncommon for buyers to choose longer terms for their auto loans However, it's not worth giving in to pressure from sales. The shorter your auto loan time frame, the better. Not only does it guarantee you pay lower interest, but it will also result in paying off the debt earlier. This means that you'll have extra cash every month to put toward other expenses and debts. If you aren't capable of paying a greater monthly payment, you can opt for an extended repayment period at the start and when your budget is able to allow. If you're lender doesn't have a prepayment charge You can also take care to pay back your loan in advance and save on interest. When you think about the length of your term be sure to keep your current circumstances along with your needs and long-term goals in mind. There isn't a loan length that is ideal for every person, therefore understanding your finances will help you determine the most effective path to take. The bottom line Although you'll pay lower monthly installments for an 84-month auto loan however, you'll end up paying more interest. Additionally, you'll be liable for paying more for the loan than the car is worth and potentially huge repair costs. When deciding on a longer auto loan duration, think about the shorter duration to save money overall. Find out more
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Written by Contributing writer Ben Luthi is a personal writer of travel and finance who loves helping people learn how to live their lives more fully. His writing has been featured in numerous publications, including U.S. News & World Report, USA Today, Yahoo! Finance, and many more. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances through providing clear, well-researched details that cut complex topics into manageable bites.
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