84 Month Auto Loans: Are 7 Year Car Loans a Good Idea?
84 month auto loans allow borrowing money for a new or used car purchase and repaying it over 7 years. This elongated repayment term results in lower monthly payments compared to shorter length loans of 3-5 years. But are 84 month car loans ultimately a wise financial move for consumers? This guide examines the pros and cons of 84 month financing.
What are 84 Month Auto Loans?
84 month auto loans provide financing for a car over a 7 year repayment period. Borrowers are given 84 months, or 7 years, to pay off the loan with interest.
With a longer repayment timeline, the monthly payment amount is lower compared to standard 3 or 5 year auto loans. However, more interest accrues over the prolonged 84 month term.
Both new and used car purchases can qualify for 84 month financing from banks, credit unions, and auto lenders. Qualified borrowers only need to make the first month's payment at signing.
Pros of 84 Month Auto Loans
Benefits of 84 month car loans include:
- Lower monthly payments - Spreading the loan over 7 years reduces the monthly payment by 30-40% or more.
- Pay off faster - Borrowers can pay extra each month to pay off early with no prepayment penalty.
- Buy more car - Larger total loan amount allowed for a more expensive vehicle.
- Build credit history - Making consistent on-time payments helps credit scores when maintained responsibly.
- Lower payment-to-income ratio - Smaller monthly payment takes less income percentage, which lenders prefer.
For borrowers focused on affordability, the much lower monthly payment of a 84 month loan makes the purchase feasible.
Cons of 84 Month Auto Loans
Drawbacks of 84 month auto loans:
- Higher interest costs - Paying interest over 7 years increases total interest paid.
- Higher chance of upside down loan - Vehicle depreciates faster than loan principal drops.
- Longer repayment period - Increases chance of fatigue paying so many years.
- Mileage and wear issues - Average driving may exceed 100k miles during the loan.
- Changes in financial status - Job loss or income drop over 7 years makes loan vulnerable.
- Lower equity position - Loan-to-value ratio remains high for years.
The #1 risk is paying far more interest costs over the lifetime of the 84 month loan. Upside down loans also become more likely the longer the repayment term.
What is a Good Interest Rate on an 84 Month Auto Loan?
Interest rates on 84 month loans average:
- New cars: 4% to 8%
- Used cars: 5% to 12%
For well qualified borrowers with good credit (scores above 700), interest rates in the 3-5% range are possible for new cars. For used cars, rates between 4-6% are considered competitive.
As with any loan, higher credit scores qualify for lower interest rates. Subprime borrowers with scores below 600 often pay rates from 15-25% APR if approved.
Are 84 Month Auto Loans Risky?
The longer timeframe of an 84 month loan does make it riskier in some ways:
- More interest paid over life of loan, often thousands extra
- Higher chance of having an underwater loan if trading in before paid off
- Greater risk of vehicle or repair issues over 7 years of ownership
However, for borrowers who qualify at reasonable interest rates and practice good financial habits, 84 month loans allow:
- Buying a better equipped or more reliable vehicle
- Lower monthly payment may free up cash flow for other goals
- Ability to pay extra and pay off earlier than 84 months
When used prudently, 84 month loans offer a longer but manageable repayment option. But borrowing more than one can truly afford is always risky.
What is the Total Interest Paid on an 84 Month Auto Loan?
The total interest paid depends on the loan amount, interest rate, and full term:
For example:
- $30,000 new car loan
- 5% interest rate
- 84 month repayment term
Total interest paid = Approximately $5,762
With a 60 month term, the interest paid would be around $3,700 instead over the shorter period.
Always opt for the shortest term that fits the monthly budget. Extra interest savings can be substantial over just a few years.
Should I Make a Large Down Payment?
Putting down a 20% or higher down payment is advisable to:
- Reduce amount financed and total interest owed
- Gain more equity upfront and help avoid an upside down loan
- Show good faith and commitment to lenders for better approval odds
- Qualify for better interest rates by lowering the lender’s risk
While 84 month loans allow financing almost 100% of the vehicle price, avoid this if possible. A sizable down payment improves loan terms and the overall deal structure.
Do 84 Month Auto Loans Require a Good Credit Score?
Lenders typically impose minimum credit score requirements:
- Prime lenders want 650+ scores for 84-month loans
- Subprime may approve 600-649 scores but at higher rates
Those with credit scores below 600 face difficulty getting approved except at high rates above 15% APR.
Having excellent credit in the 700s qualifies 84 month loans at the most competitive interest rates under 6% for new cars and 8% for used.
Monthly Payment Examples on an 84 Month Used Car Loan
| Vehicle Price | Down Payment | Amount Financed | Interest Rate | Monthly Payment |
|---|---|---|---|---|
| $15,000 | $2,000 | $13,000 | 7% | $210 |
| $20,000 | $5,000 | $15,000 | 5% | $250 |
| $25,000 | $0 | $25,000 | 12% | $460 |
Higher vehicle prices, lower down payments, and worse credit mean larger monthly payments.
5 Tips for Getting Approved for an 84 Month Auto Loan
Follow these tips when applying:
- Improve your credit score - Allow time to boost scores above 650. Pay down balances.
- Lower your debt-to-income ratio - Keep monthly obligations below 40% of gross income.
- Make a sizable down payment - At least 15-20% down to improve approval odds.
- Shop rates from multiple lenders - Compare to find the best interest rate for your situation.
- Bring proof of income - Lenders want to see you can actually afford the monthly payments.
Borrowing prudently and within your budget makes getting approved much easier.
FAQs
What is the maximum loan term allowed for a car?
84 months (7 years) is typically the longest term most lenders allow. Some may extend up to 96 months (8 years) for very large loans.
What happens if I pay off my 84 month auto loan early?
There are never early payment penalties. Paying extra to pay off the loan faster will save substantially on interest costs.
Who offers the best auto loan rates on 84 month loans?
Online lenders, credit unions, and community banks typically offer the most competitive interest rates on longer auto loans.
What are the chances of getting approved for an 84 month auto loan with bad credit?
Approval odds are low unless you have a sizable down payment or a co-signer with excellent credit to offset the high risk.
Is it smarter to get a shorter 60 month loan instead?
In most cases, yes - shorter loans have lower rates, less interest paid, and the car is paid off sooner. But 60 month terms do have higher monthly payments.
Key Takeaways on 84 Month Auto Loans
- 84 month loans spread auto financing over 7 years for manageable monthly payments
- Lower monthly costs allows borrowing more, but watch total interest paid
- Ideal for well qualified borrowers getting competitive interest rates under 6%
- Requires good credit scores - 650+ for prime lenders
- Higher risk of underwater loan and interest costs vs shorter term
- Make large down payment and accelerated payments to offset risks
While they aren't right for everyone, 84 month auto loans can provide affordable access to reliable vehicle ownership when used prudently by creditworthy borrowers. But proceed with caution - it's a lengthy commitment.
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