Simply put, it’s a loan with an 84-month term. It means that the borrower has 84 months or seven years to repay the amount borrowed from the lender. What’s different is that typical loans don’t offer such long durations.
The Times Are Changing
Car prices are on the rise. Lending institutions, therefore, are offering higher amounts and longer terms than ever before. The longest car loan would typically be for about five years, but in 2019, the average car loan term was 68 months.
Long Term Loan Benefits
An 84-month car loan gives you the following:
– Lower EMI payments
– More liquidity for other payments
– More expensive vehicles become affordable
– More savings or investments
Lower EMI payments
A car that costs $20,000 financed with a five percent interest rate would work out to the following monthly payment amounts:
– Five-year loan: $377/month
– Six-year loan: $322/month
– Seven-year loan: $283/month
A seven-year loan would free almost $100/ month.
More Liquidity
If you compare the interest rates of your car loan, credit card, mortgage, or student loan, you may want to consider opting for the longer-term car loan and paying off the other debts as their interest rates are higher.
More Expensive Vehicles
When you have to pay a lower amount per month over 84-months, you may be able to afford a more expensive car. But be careful not to stretch your budget.
More Savings
The money freed up each month could be invested for the future. It would earn you more over the long-term and help build wealth.
Negatives of The 84-Month Loan
– Higher interest
– More interest paid over seven years
– Going upside down
– Warranty expiration
Higher Interest
Longer terms mean higher interest rates. Lending institutions will have to wait longer to get their money back from you, so they charge more interest.
More Interest Paid
Check these interest numbers:
– Five-years at $377/month: $2645
– Six-years at $322/month: $3191
– Seven-years at $283/month: $3745
That’s about $1000 more in interest for the seven-year loan.
Upside Down
Cars depreciate. So you might owe the lender $9000, but the car’s only worth $8000. This is being upside down or having negative equity.
Warranty Expiration
New car warranties last from three to five years. Your seven-year loan means you take the risk of paying for major repairs while you’re still paying off the loan.
