84-Month Auto Loans: Navigating the Pros & Cons

May 5, 2020

An 84-month (or 7-year) term gives you plenty of time to pay off a car loan, but it doesn’t come without its drawbacks. So, how do you decide if a seven-year car financing term is right for you?

84-month auto loans happen to be one of the most popular financing terms for car buyers. In this article, we highlight the pros and cons of longer loan terms along with some helpful tips to consider if you decide to go the 84-month distance.

Is an 84-month auto loan bad?

On very rare occasions, new car financing is available for 84 months at 0% interest, or at least close to it. That’s not the norm, however. For subvented interest rates through a carmaker’s own lending institution, it’s usually the shorter terms that have 0% interest and longer terms have higher rates. And for used car buyers, it’s not typical for subvented interest rates to be available at all. That means the longer you finance a car, the more interest you’ll pay overall. 

Another pitfall for long financing terms is being in negative equity for longer; also known as being "upside down" in your car loan. Being "upside down" on a car loan means you owe more than the vehicle is worth. So for example, if you sell the car at market value, that still won’t be enough to pay off your remaining loan balance. This usually occurs early on in the loan term with any new car purchase (unless you made a down payment) because you've just started paying off what you owe and vehicle depreciation is so great in the first years of ownership. Of course, this will happen with any loan term you choose, but with an 84-month auto loan, you'll be in this negative equity situation for longer.

Furthermore, you should consider that your vehicle warranty could expire while you’re still making car payments. If your loan payments stretch you thin, will you be able to afford potential repairs that come up?

Pros of 84-month auto loans

Cons of 84-month auto loans

  • Higher quality vehicles are more attainable today
  • Potential to be "upside down" for longer
  • Frees up monthly income to focus on other expenses
  • Pay interest for a longer period of time
  • Opportunity to build credit for longer
  • Vehicle warranty could expire before term ends

The benefits of 84 months

Of course, 84-month car loan terms are available for a reason. For many car buyers, payments simply aren’t affordable on the car they want unless longer terms are an option. It can be the difference between the ability to buy a car now or waiting for months or years. 

Buying a new or nearly-new car with an 84-month term can also free up your income for other debt obligations like a higher mortgage payment or to pay down credit cards. 

Or, it could simply mean you can afford a nicer car than if you chose a shorter loan repayment term. 

There’s something else that’s important to note here: Credit-building opportunities! With positive payment history on a car loan, you can build up your credit. And the longer you make payments on a loan, the better it will be for your credit score! 

Tips for going the distance with a longer financing plan

When you choose a financing term for longer than 60 months, there are few tips you should be mindful of.

1. A used car depreciates less

A brand new car will depreciate by as much as 10% the moment you drive it off the lot and 20% or more in the first year. When the average new car price is around $40,000 in Canada, you’re losing a lot of value in the first year. In this scenario, it’s easier to become upside-down in a car loan. 

Instead, consider buying a used car. Someone else has already taken the hit on depreciation. For cars that are a few years old, an 84-month car loan is still possible, depending on the lender and your credit history. 

2. Buy a vehicle that retains its value

Some vehicles depreciate at a faster rate than others, of that there’s no debate. If you’re paying off a vehicle over seven years, you’ll want a car that won’t lose a lot of value with every passing year. Or if you decide to trade it in during your 84-month term, it will help put you in an equitable position. 

Typically, pickup trucks and SUVs hold their value well. Import cars and premium models also tend to retain their value. Before making your decision, research your vehicle options to select a car that you both want to drive and that will hold its value.

3. Make a down payment (if you can)

If you’re able, a down payment can put you in a position of positive equity. For many lenders, a down payment isn’t a requirement, and if it’s going to stretch you too thin to make a substantial down payment, forego it. 

4. Get an extended warranty

An excellent investment for 84-month car loans is an extended warranty or vehicle service contract (VSC). If you’re unsure you’d be able to afford car repairs while still making car payments, an extended warranty is a fantastic way to avoid the most expensive repairs as your vehicle ages. 

Other ways to save money

If an 84-month term seems like the way to go, there are other ways you can save yourself some money during the years you’re making car payments. 

  • Refinancing: Just because your term is long, it doesn’t mean you’re stuck with the same monthly payment for seven years. As your credit improves with positive payment history, you’ll be eligible to refinance your existing car loan. It means you can qualify for a better interest rate, shorten your term to get your car loan paid off faster, and more.
  • Perform your own car maintenance. Routine car maintenance is relatively easy for even a novice DIYer. Basic hand tools and tons of free online content can help you save money on tasks like tire care, battery checks, and that mysterious Check Engine light
  • Save money on fuel. Be cognizant of the money you spend fueling your vehicle in a month. Keeping your tires properly inflated, lowering your speed, and reducing your idle time can all contribute to lower fuel costs
  • Save money on insurance. Geico or not, you may be able to save on your car insurance costs. Shop around for the best rates if you’re in a province with private insurance, comparing coverage apples to apples. It’s possible to save more if you choose a higher deductible, ask if there are any discounts available, and keep your driving record clean. 

Find a great deal on your next car

Whatever term suits your budget, Canada Drives can match you with a local dealership that knows how to help—regardless of your credit score! Get pre-approved today and drive away as soon as tomorrow. 

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