84-Month Auto Loans: High Risks, Few Rewards

If you’re wondering whether you should pay for that dream car with an 84-month auto loan, consider what a long-term car loan could mean for your finances. Paying for a car over 72 or 84 months — in other words, six or seven years — means that you would likely be “underwater” immediately, or owe more on the loan than what your car is worth. As the car ages, you may have to cover the cost of repairs while you’re still making payments.

We’ll walk you through some alternatives to long-term auto loans and the few instances where they might make sense.

Drawbacks of 72- or 84-month auto loans

Paying for a car over 72 months or 84 months typically means you will have lower monthly car payments but will face significantly higher interest charges over the life of the loan. Even if that doesn’t sound so bad — after all, you’ll stick to your monthly budget — there are additional risks.

Higher overall cost

Here’s a closer look at how long-term auto loans wind up being more expensive in the long run. In this example, an 84-month car loan costs $1,100 more in interest than a 60-month loan on the same $20,000 vehicle at 5% APR (not including other costs such as taxes and dealer fees).

Higher interest rates

Long-term auto loans typically come with higher interest rates. A buyer who chooses an 84-month auto loan on a $25,000 vehicle will pay $3,353 more in interest fees than an identical buyer with a 36-month auto loan at 5.19% APR and 3.86% APR, respectively.

Source: S&P Global Market Intelligence

Greater sting from depreciation

New cars lose about 9% of their value as soon as you drive them off the lot. This is known as depreciation, which picks up speed in the first few years of a car’s life. Drawn-out payments make the situation worse because your car may be depreciating faster than you can pay it off. When you owe more than what your car is worth, that’s called being upside down or underwater on your auto loan.

This could come back to haunt you if you’re in an accident or become the victim of car theft. You might owe money to your lender when your auto insurance provider fails to cover the entire loss. Insurance companies only cover what the totalled or stolen car is worth — you’re on the hook for the rest. This is what’s known as negative equity.

Negative equity also comes into play if you decide you want to sell or trade in a car before the loan is due and get a different car. Many lenders will roll negative equity into a new loan, but you’re setting yourself up for a cycle of negative equity in which you’ll always owe more than the car is worth.

Repairs while making payments

Most warranties don’t last for 72 months (six years) or 84 months (seven years). The typical “bumper-to-bumper” warranty lasts for half that time or less, usually for three years, 36,000 miles driven. Powertrain warranties are usually for five years, 60,000 miles. It’s never fun to pay for car repairs, but especially not while you’re still paying off a car note. Extended warranties are available but may cost as much as $2,500.

Lack of long-term flexibility

A lot can change in seven years. Will your car still be the type of vehicle you need? For example, will it be big enough for your growing family or be able to handle different weather if you move? A long-term car loan locks you into one type of car.

Benefits of long-term auto loans

While there aren’t many pros to having a car loan for six years or more, there may be a few, rare cases when a long-term car loan might make sense.

Lower payments

In our earlier example of a $20,000 car loan with a 5% APR, the monthly payment on an 84-month auto loan is lower than what you could get from financing for 60 months or 72 months. It’s a difference of nearly $100 when compared to a 60-month term. A lower monthly payment could be easier on your budget.

Nicer car

Because the monthly payment is typically lower on an 84-month auto loan, you may find that a longer-term loan allows you to afford a more expensive car on your monthly budget. But be sure to look at overall costs in addition to just monthly ones because you usually end up spending a lot more money in the long run. And never settle on the first lender that offers a loan — especially when you could be paying it for the next seven years. Fill out a single online form at LendingTree and receive up to five auto loan offers from lenders, depending on your creditworthiness.

Flexible monthly budget

With a smaller car payment, you could free up money to boost your financial health in other ways.

Pay down more expensive debt. If your car loan has a 5% APR and your credit card has a 20% APR, it makes sense to pay off the card first.

Beef up your savings. Contribute to an emergency fund for protection against unexpected expenses.

Invest money. If you can get a 7% annualized return from investing your money in the stock market and your car loan APR is 3%, you could come out ahead from investing the money you’d otherwise spend on your monthly car payment.

Is an 84-month auto loan worth it?

Long or short, your loan term is a personal choice, but shorter is usually better. As we mentioned earlier, lenders typically give the lowest interest rates on car loans with the shortest terms.

An exception to the rule is if you qualify for a 0% APR deal on a long-term car loan. Automakers frequently advertise no-interest financing such as “0% financing for 72 months” — if you make on-time payments for the whole term, you’ll pay zero interest fees.

However, 0% APR deals are reserved for borrowers with the highest credit. And it’s not always as good a deal as it sounds. If the manufacturer offers you the choice of low-interest financing or a rebate, it’s almost always better to take the rebate, which is money shaved off the price of the car. When the car’s price is lowered, the less you have to borrow and owe, which can make a difference if you decide to sell the car before the loan is due.

How to tackle a 72- or 84-month auto loan

If you already have a 72-month or longer auto loan and need help managing it, here are some ideas:

Make extra payments

You can do this a couple of different ways.

1. Pay toward the principal each month: Check with your lender to see if you’d be penalized for paying off the loan early. If not, pay extra each month, putting the additional funds toward the loan principal. When you pay principal on a car loan, you’re paying off the original amount you borrowed. You may have to give explicit instructions to your lender — otherwise, it might apply extra payments toward interest and fees.
2. Pay toward the principal in a lump sum: If you won’t be penalized for paying off the loan early and don’t want to make an extra payment each month, you can make one large lump-sum payment to the principal.

Refinance your loan

Refinancing means replacing your old loan with a new one. You may be able to refinance for a shorter term and lower APR to pay off your debt faster — and for less money. An auto refinance loan could be a good option if your credit has improved since taking out your original loan or if interest rates have dropped in general.

Alternatives to a long-term car loan

A long-term auto loan isn’t the only way to get more manageable monthly payments. Consider one of these options instead.

Lease a car

A car lease typically provides lower payments than a financed car purchase. It can be a smart choice on a tight budget, especially for people who would otherwise buy a new car every few years. But you won’t build equity with a car lease and may face fees for things like excess mileage or wear and tear. Find out whether leasing or buying a car is right for you.

Buy a less expensive car

An inexpensive new car or used car in the model you want is a straightforward way to borrow less. Don’t want to give up on your dream car? Here’s how to negotiate a better car price.

Make a higher down payment

The larger the down payment, the lower your loan amount. Consider dipping into your savings or waiting until you have saved a little more before buying a car. A significant down payment can help you get a lower payment and, possibly, a lower APR and term. Don’t dip so far into your savings that you can’t pay other bills on time. Here are eight ways to make extra money.

Get a cosigner

If a high APR is driving up your monthly payment, consider a cosigner, or a person who signs the auto loan with you. The cosigner is personally and jointly responsible for paying back the loan. Having a cosigner can help you secure a loan, particularly if the cosigner’s credit is stronger than yours. Their backing could lead to a lower APR — and, therefore, monthly payment — on an auto loan.

FAQs about long-term car loans

How long is 72 months? How long is 84 months?

72 months is six years. 84 months is seven years.

Is it bad to finance a car for 84 months?

Not necessarily. In most cases, a shorter auto loan is going to be less expensive, but there are exceptions. An 84-month auto loan might make sense if you plan to pay down high-interest debt or invest the money you’d otherwise put toward a car payment.

What about 96-month auto loans?

While some lenders do offer 96-month car loans, such a long loan term is not recommended. Take a look at our auto affordability calculator to see how much car you could afford with a shorter-term loan.

Who finances vehicles for 84 months?

Almost all car lenders are able to offer 84-month auto loans. However, it might be hard to qualify for one. Lenders take many factors into consideration, including the exact car you’re purchasing, its loan-to-value (LTV) ratio, your credit score and more.