Why an 84-month car loan is a clunker for your finances

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Why an 84-month car loan is a clunker for your finances

Imagine buying a new car, getting the keys, signing a financing agreement — and then realizing you’ll still be making payments seven years later.That's a real possibility now, as more car dealerships and lenders offer 84-month auto loans.To get more auto finance news, you can visit shine news official website.

If obtaining any financing might be a struggle for you, a seven-year loan may seem like a great option. After all, a longer term means a smaller monthly payment.Until recently, the longest car loan lenders would ever consider was 72 months, or six years.

Newer, 84-month loans tempt borrowers with even smaller payments over an even lengthier term.This can seem very appealing if you have a limited budget and can't afford the payments on a shorter-term loan.The smaller payments with an 84-month auto loan theoretically free up money you could put toward other uses.

The idea makes sense if you feel confident your investments will net you a higher return than the interest on the loan.

But from all indications, few borrowers are taking advantage of 84-month car loans for investment purposes.Though an 84-month loan means a smaller payment every month, your total interest will be higher because you'll be paying interest longer.

And a seven-year loan typically comes with a higher interest rate than a shorter-term loan.Assuming you have excellent credit, the monthly payment on a 60-month, $20,000 loan might be about $100 higher than the monthly payment on an 84-month loan.

But you’d save $1,200 in interest over the course of five-year loan, versus the seven-year.

You could always try to pay back an 84-month loan sooner to cut down your total interest, but many lenders charge a prepayment fee for paying off your loan early, so it may not be worth it.