When it comes to purchasing a car or any big-ticket item, financing options play a significant role in the decision-making process. One popular option that has gained attention in recent years is 84-month financing. This extended term may seem appealing at first glance, but is it truly a good idea? Let’s delve into the pros and cons of opting for an 84-month financing plan.
Pros of 84 Month Financing
1. Lower Monthly Payments: One of the primary advantages of an 84-month financing plan is the potential for lower monthly payments. By spreading the loan over a longer period, the monthly amount you need to pay decreases, making it more manageable for your budget.
2. Affordability: If you have your eyes set on a high-priced vehicle but lack the funds for a substantial down payment, an 84-month financing option can make it more affordable to drive home your dream car. It allows you to spread the cost over a more extended period, reducing the immediate financial burden.
3. flexibility: With lower monthly payments, you may have the flexibility to allocate your funds towards other important financial goals, such as saving for emergencies or investing in other ventures.
4. Potential Lower Interest Rates: In some cases, lenders may offer more competitive interest rates for longer-term loans, making the overall cost of borrowing more affordable in the long run. However, it is crucial to compare interest rates and terms from multiple lenders to ensure you secure the best deal.
Cons of 84 Month Financing
1. Increased Total Cost: While lower monthly payments may seem enticing, opting for an 84-month financing plan typically leads to a higher overall cost. With interest accumulating over a more extended period, you end up paying more in the long run compared to shorter-term financing options.
2. Negative Equity: Due to the slower rate at which you pay down the loan principal, there is a higher chance of being in a negative equity situation. This means you may owe more on the vehicle than it’s worth, making it challenging to sell or trade-in the car before the loan is paid off.
3. Depreciation Concerns: Vehicles generally depreciate over time, and an 84-month financing plan increases the likelihood of being “upside down” on your car loan, where the value of the vehicle is less than what you owe. This can pose a problem if you need to sell or trade-in the car before the loan term ends.
4. Long-Term Commitment: Committing to an 84-month financing plan means you are locked into the loan for a more extended period. If your financial situation changes or you wish to upgrade your vehicle sooner, you may face difficulties in refinancing or getting out of the loan altogether.
Conclusion
While 84-month financing may offer lower monthly payments, greater affordability, and flexibility, it is essential to consider the potential drawbacks. The longer loan term leads to increased overall costs, negative equity, depreciation concerns, and a long-term commitment. Before opting for this financing option, carefully evaluate your financial situation, long-term goals, and the true cost of borrowing. It’s advisable to consult with a financial advisor or explore other financing alternatives that best suit your needs and financial well-being.