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Imagine buying a new car, getting the keys, signing a financing agreement -- and then realizing you could still be making payments seven years later.
That's a real possibility now, as more car dealerships and lenders offer 84-month car loans.
If obtaining any financing might be a struggle for you, a seven-year loan might seem like a great option. After all, the longer term means a smaller monthly payment.
But that doesn't mean it's a good idea. Here are a few pluses — and even more minuses — of 84-month car loans.
1. Plus: The loans seem more affordable
It used to be that the longest car loan that lenders and borrowers would ever consider was 72 months, or six years.
Newer, 84-month loans tempt borrowers with smaller payments over a lengthier term.
This can seem very appealing if you have a limited budget and couldn't afford the payments on a shorter-term loan.
2. Plus: You'd have more money to invest
The smaller payments with an 84-month auto loan theoretically free up money you could use for other uses.
The idea makes sense if you knew of an investment that would be guaranteed to 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.
3. Minus: It's a sign you can't afford the car
If you really need a seven-year loan to buy your dream vehicle, it's probably well out of your price range.
It's smarter to look at cars that are more within your budget and wouldn't require such extensive financing.
Unlike a house, a vehicle would never be considered an investment. So making a commitment to long-term financing is not a good idea.
4. Minus: You'll pay a ton more in interest
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, understand that a seven-year loan typically comes with a higher interest rate than a shorter-term loan.
If the rate is considerably higher, your monthly payment might not be all that much lower than you'd have with a five- or six-year loan.
5. Minus: You could find yourself upside-down
The average new vehicle loses up to 25% of its value every year, according to Edmunds.
That means your car will likely depreciate faster than you can pay it off, leaving you upside-down on your loan.
In other words, if you were to sell the car for market value before your 84-month loan term is up, you'd probably owe some money to your lender.
6. Minus: Your warranty will expire first
Finally, a big selling point on new vehicles is the warranty that covers repairs in the early years.
Most warranties don't last seven years, and as your loan ages your vehicle will probably need repairs that are more involved and expensive.
That means you'll be paying for repairs out of your own pocket while you're still paying for your car.
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