When it comes to purchasing a new car, one of the biggest decisions you have to make is how to finance it. With so many options available, it can be overwhelming to choose the best one for your needs. One financing option that has gained popularity in recent years is 84-month financing. But is it really a good idea? Let’s explore the pros and cons of this extended loan term.
The Pros of 84-Month Financing
1. Lower monthly payments: One of the main advantages of opting for an 84-month financing plan is the lower monthly payments. By stretching out the loan term, you can significantly reduce your monthly financial burden, making it more manageable for your budget.
2. Affordability of higher-priced vehicles: If you have your eye on a more expensive car but can’t afford the monthly payments on a shorter-term loan, an 84-month financing plan can provide a solution. It allows you to finance a higher-priced vehicle while still keeping your monthly payments within your budget.
3. Flexibility for other investments: By choosing a longer loan term, you free up additional funds that can be used for other investments or expenses. This flexibility can be particularly beneficial if you have other financial goals or obligations you need to consider.
4. Potential for improved credit score: If you make all your payments on time, an 84-month financing plan can help you establish a positive credit history. Consistently paying your loan installments can boost your credit score over time, opening up opportunities for better interest rates in the future.
The Cons of 84-Month Financing
1. Higher overall interest costs: While lower monthly payments may sound enticing, it’s important to consider the bigger picture. An 84-month financing plan typically comes with higher interest rates, resulting in higher overall interest costs over the life of the loan. This means you’ll end up paying more for your vehicle in the long run.
2. Extended debt commitment: Committing to an 84-month loan term means being in debt for a longer period. Before making such a long-term commitment, it’s crucial to assess your financial stability and future plans. It’s important to consider if you’ll still be satisfied with the car and its financing terms several years down the line.
3. Potential for negative equity: Because vehicles depreciate over time, opting for an 84-month financing plan increases the risk of being in a negative equity situation. Negative equity occurs when you owe more on your car loan than the vehicle is worth. This can constrain your future options, such as trading in or selling the car before the loan term ends.
4. Limited warranty coverage: Car warranties typically have a limited duration, often between 3 to 5 years. With an 84-month financing plan, you may end up making loan payments long after your warranty has expired. This means you’ll be responsible for any repair or maintenance costs, which can significantly impact your budget.
Conclusion
While 84-month financing can offer benefits such as lower monthly payments and increased affordability, it’s essential to carefully weigh the drawbacks. Consider the higher overall interest costs, extended debt commitment, potential negative equity, and limited warranty coverage. Before deciding on an 84-month financing plan, it’s crucial to evaluate your financial situation, future plans, and personal preferences. By doing so, you can make an informed decision that aligns with your long-term goals and ensures financial stability.
