When you’re considering financing a vehicle, understanding the terms of your car loan is crucial. Just like any loan, a car loan comes with a specific repayment schedule, often referred to as the loan term or length. Finding the right car loan term depends on your individual circumstances, but it usually involves balancing lower interest payments with overall affordability. One common loan term you might encounter is 84 months. So, How Many Years Is 84 Months in the context of a car loan?
84 months is equal to seven years. This is a significant period, and understanding what an 84-month car loan entails is essential before making a financial commitment.
Typical Car Loan Lengths Explained
Car loan lengths vary, but the most typical terms range from 36 to 84 months. While some loans might be shorter or longer, and certain lenders offer unconventional terms, the standard options are usually within this range.
Common Car Loan Terms: Breaking it Down
The length of a car loan, or its term, is a key factor in your repayment plan. Here’s a breakdown of the most common car loan terms and their equivalent in years:
- 36 months (three years)
- 48 months (four years)
- 60 months (five years)
- 72 months (six years)
- 84 months (seven years)
Opting for a longer term, such as 84 months, gives you more time to repay the loan. However, it’s important to realize that while it extends your repayment period, it also increases the total interest you’ll pay over the life of the loan.
The Average Car Loan Length Today
Currently, the 72-month term is the most common for both new and used car purchases. The average car loan length has been increasing over the decades, with 72 months now being more prevalent than in the past.
The popularity of the 72-month loan term continues to rise, likely because spreading payments over a longer period makes monthly installments more manageable compared to a 60-month loan. Looking ahead, it’s possible that 84-month loans could become even more popular as buyers seek even lower monthly payments.
84-Month Car Loans: Advantages of Longer Terms
Longer loan terms, like 84 months (seven years), offer advantages that appeal to many car buyers, whether they are purchasing a new or used vehicle. These benefits primarily revolve around affordability in the short term.
Lower Monthly Payments: Making Cars More Affordable
The main advantage of an 84-month car loan is significantly lower monthly payments. By spreading the total loan amount over seven years, the individual payments become smaller compared to shorter-term loans. This can make buying a car more financially accessible and is a major reason why long-term loans are attractive to a wide range of buyers.
Building Credit: An Easier Path
For individuals looking to build or improve their credit score, an 84-month loan can be a helpful tool. The lower monthly payments make it easier to consistently make payments on time, which is crucial for credit building. While not the only way to establish good credit, the manageable payments of a longer loan term can contribute positively.
Upgrading Your Vehicle: Affording a Better Car
With reduced monthly payments, an 84-month car loan can enable you to purchase a more expensive or higher-end vehicle than you might be able to afford with a shorter loan term. This allows buyers to access better features, more reliable models, or simply a newer car that better suits their needs and preferences.
84-Month Car Loans: Drawbacks to Consider
While the lower monthly payments of an 84-month car loan can seem appealing, it’s important to be aware of the significant drawbacks associated with these long-term loans.
- Higher Interest Costs: Longer loans, including 84-month terms, accumulate significantly more interest over the loan’s life. They often come with higher interest rates to begin with, and the extended repayment period means interest accrues for a much longer time. This results in paying substantially more for the car in the long run compared to shorter-term loans.
- Depreciation Risks: Cars are depreciating assets, meaning their value decreases over time. With an 84-month loan, there’s a higher chance that your car’s value will fall below what you still owe on the loan, especially in the later years. This situation, known as being “underwater” or “upside down” on your loan, can be financially risky if you need to sell or trade in the vehicle.
- Increased Risk of Default: Life circumstances can change significantly over seven years. An 84-month loan term increases the possibility of financial hardship or unexpected events that could make it difficult to keep up with payments, raising the risk of default and potential vehicle repossession.
These downsides often make an 84-month car loan, and long-term loans in general, a less than ideal financial choice despite the lure of lower monthly payments.
Short-Term Auto Loans: The Benefits of a Faster Payoff
In contrast to 84-month loans and other long-term options, short-term car loans offer distinct advantages that can save you money and reduce financial risk over time.
Lower Overall Interest: Saving Money
The primary benefit of a short-term car loan is paying significantly less interest. These loans typically have lower interest rates, and because the loan is paid off faster, interest accrues for a much shorter period. This can translate to thousands of dollars saved in interest payments over the loan’s life, making the total cost of the car much lower.
Reduced Financial Risk: Less Chance of Being Underwater
Short-term car loans carry less financial risk. Because you pay off the loan more quickly, you’re less likely to find yourself in a situation where you owe more on the car than it’s worth due to depreciation. This reduces your financial exposure if you need to sell the car or if it’s totaled in an accident.
Faster Debt Freedom: Owning Your Car Sooner
With a shorter loan term, you’ll be debt-free sooner. This means you’ll own your car outright much earlier and can enjoy driving without monthly car payments. This can free up cash flow for other financial goals and provide peace of mind. Furthermore, if you tend to replace your car every few years, a shorter loan term avoids the cycle of continuous car loan payments.
Short-Term Auto Loans: Drawbacks to Consider
While short-term car loans offer significant financial advantages, they also have drawbacks that might make them less accessible or appealing to some buyers.
- Higher Monthly Payments: The main disadvantage of short-term loans is significantly higher monthly payments. To pay off the loan faster, you’ll need to make larger installments each month, which can strain your budget.
- Larger Down Payment May Be Required: To compensate for higher monthly payments and keep them within a reasonable range, lenders might require a larger down payment on a short-term loan. This can be a barrier for buyers who don’t have substantial savings.
- Potentially Less Car for Your Money: If you’re strictly focused on keeping monthly payments low, a short-term loan might limit the type or price of car you can afford compared to an 84-month loan that spreads payments over a longer period.
Choosing the Right Car Loan Term for You
Deciding between an 84-month car loan, a shorter term, or any other loan length involves carefully weighing the advantages and disadvantages of each option against your personal financial situation and priorities.
When considering the right car loan term, remember these key points:
- 84-Month and Long Loan Terms: Offer lower monthly payments and greater initial affordability but result in higher total costs and increased financial risk over time.
- Short Loan Terms: Require higher monthly payments but save you money on interest and reduce financial risk in the long run.
Ideally, you should aim for the shortest loan term you can comfortably afford. Determining whether that’s a 36, 48, 60, 72, or even an 84-month loan requires evaluating your income, savings, and the specific car you intend to purchase. Carefully consider your budget and long-term financial goals to make an informed decision about your car loan term.
