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Why 84 Month Auto Loans are a Bad Idea



Long-term auto loans are just one method finance companies and auto dealerships use to lower your monthly payments. Typically, the longer the term, the lower your monthly payments. Unfortunately, going 84 months on an auto loan ties you to a single car for at least seven years, and costs far more than you would have otherwise agreed to pay for the vehicle. 

Below you will learn a few important reasons why it can be a bad idea financially to take out long-term auto loans.

 

The Actual Cost of the Vehicle

Let’s say you want to purchase a car and need a $30,000 loan. The longer you finance your vehicle, the more money it will cost in the end. Here’s how those numbers play out with a 4% interest rate.

 

Number of Months Monthly Payments Total Interest
60 $552.50 $3,149.74
72 $469.36 $3,793.60
84 $410.06 $4,445.39

 

It’s true that the savings on the monthly payment are substantial when you choose a longer term. When comparing the 84-month payment ($410.06) versus the 60-month payment ($552.50), the difference is $142.44. Most people can do plenty with that extra money in their pockets. But is it the right choice for you?

Auto dealerships love longer-term loans because it allows them to sell higher-priced vehicles without seeming to do so. After all, the monthly payments are affordable. However, the longer you draw out the payments, the more interest you will pay for the vehicle.

You’ll notice with the 60-month term, you pay $3,149.74 in interest over the life of the loan. For 84-months, that amount is $4,445.39 – an increase of $1,295.65!

While some people prefer this method, others find the actual costs a little too high. Unfortunately, this isn’t the only downside to consider when it comes to longer payment terms on your auto loan.

 

Going Underwater

Most people are familiar with the term “underwater” as it relates to a mortgage loan. The same thing holds true when it comes to auto loans. It means you owe more on the vehicle than it is worth.

With the rapid depreciation of car values, this can happen quite easily if you finance your vehicle for an extended time. Depreciation also plays a significant role in selling your car or trading it in for another vehicle.

While the shiny new car you’re considering may meet all your needs today, significant changes can happen in the next seven years. You could start a family, move to another part of the country, or countless other life-changing events that may require you to get a new car. If you are underwater on your loan, you’ll have to pay off the difference before you can begin the process of financing your new vehicle. Some finance companies and dealers will let you roll the difference into the new loan, but that just compounds the issue and you’ll likely be underwater on the new vehicle.

Ultimately, you are the only one who can decide if it is worth financing a car for 84 months. Still, our members can use this information to make educated decisions.

 

We’re Here to Help!

It’s not always easy to know the right move to make when it comes to your long-term financial health. We have resources available to help you make educated choices when it comes to auto loans and more.

Contact us today by calling (315) 671-4000 or chatting to get the help you need when making auto loan decisions.

 

Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.

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