Introduction
When it comes to buying a new car, financing options play a crucial role. One option that has gained popularity in recent years is 84-month financing. While it may seem enticing to stretch your payments over such a long period, it’s important to understand the pros and cons before deciding if 84-month financing is a good idea for you.
The Pros of 84-Month Financing
1. Lower Monthly Payments: The primary advantage of opting for an 84-month financing plan is that it allows you to spread out your payments over a longer period. This results in lower monthly installments, making it more affordable for many buyers.
2. Affordability of Higher-Priced Cars: With longer financing terms, you may be able to afford a higher-priced vehicle that would be otherwise out of your budget with shorter-term financing options.
3. Flexibility in Budget Allocation: By lowering your monthly car payment through extended financing, you have more flexibility in allocating your budget towards other important expenses or investments.
4. Potential for Higher Savings: If you have the discipline to invest the money you save on monthly payments in a high-yield investment account, you may accumulate more savings over the long term.
The Cons of 84-Month Financing
1. Higher Total Cost: One of the primary drawbacks of 84-month financing is that it leads to a higher total cost for your vehicle. The longer you stretch out your payments, the more interest you will end up paying over the life of the loan.
2. Negative Equity: Since cars depreciate rapidly, especially during the first few years, opting for a longer-term loan may result in negative equity. This means you may owe more on your vehicle than it’s worth, which can be problematic if you plan to trade it in or sell it before the loan term ends.
3. Limited Financing Options: Not all lenders offer 84-month financing, so your choices may be limited. Additionally, the interest rates for longer-term loans are often higher than those for shorter terms, which can further increase the overall cost of your vehicle.
4. Long-Term Commitment: Committing to an 84-month financing plan means you’ll be making payments for a significant amount of time. This can be a disadvantage if you prefer to own your vehicle outright or if you anticipate changes in your financial situation.
Considerations Before Choosing 84-Month Financing
1. Your Financial Situation: Evaluate your current financial situation, including your income, expenses, and other debts. Consider whether you can comfortably afford the monthly payments over the long term without compromising your other financial goals.
2. Vehicle Depreciation: Research the expected depreciation rate of the vehicle you intend to finance. If it depreciates rapidly, an 84-month loan might not be the best choice, as you may find yourself owing more than the vehicle’s worth.
3. Interest Rates: Compare the interest rates offered for different loan terms. While longer-term loans often have higher interest rates, it’s crucial to assess the impact on the overall cost to determine the most affordable option.
4. Your Long-Term Goals: Consider your plans for the vehicle. If you typically keep your cars for a long time, the longer financing term may not be a major concern. However, if you prefer to upgrade vehicles frequently, you may be better off with a shorter-term loan.
Conclusion
Choosing an 84-month financing plan for your next car purchase is a decision that should be made after careful consideration. While it can make a higher-priced vehicle more affordable and provide flexibility in budget allocation, it’s important to weigh the potential downsides, such as increased costs and negative equity. Ultimately, the suitability of 84-month financing depends on your unique financial circumstances, long-term goals, and preferences.
