Understanding 84 Month Auto Loans: Benefits, Drawbacks, and Key Considerations for UK Car Buyers
When purchasing a new or used vehicle, one of the most significant decisions a buyer faces is how to finance the purchase. In recent years, longer-term auto loans have become increasingly popular, with the 84 month auto loan emerging as a notable option. Spanning a full seven years, these extended loan terms can offer lower monthly payments, making vehicles more accessible to a broader range of buyers. However, while the appeal of smaller monthly outlays is clear, the long-term implications of such agreements warrant careful consideration. Factors such as total interest paid, vehicle depreciation, and financial flexibility all play a role in determining whether an 84 month auto loan is the right choice.
In the context of the UK automotive market, where car prices and consumer preferences continue to evolve, understanding the nuances of extended financing options is essential. This article delves into the structure, advantages, and potential pitfalls of 84 month auto loans, compares them with other common loan durations, and provides practical guidance for those contemplating this route. By examining lender offerings, eligibility criteria, and the broader financial landscape, readers will gain a comprehensive view of what it means to commit to a seven-year car finance agreement.
An 84 month auto loan is a car finance agreement that stretches repayments over seven years, allowing buyers to spread the cost of a vehicle into more manageable monthly payments. This extended term is increasingly offered by major lenders and dealerships, especially as car prices rise and consumers seek affordability. While the prospect of lower payments is attractive, the commitment of such a long-term loan introduces unique financial considerations, including higher total interest costs and the risk of negative equity. For UK buyers, understanding how these loans compare to traditional options and what factors to weigh before signing is crucial for making an informed decision.
What Is an 84 Month Auto Loan?
An 84 month auto loan is a finance product where the borrower repays the amount borrowed, plus interest, over a period of seven years. The main draw is the reduction in monthly repayments compared to shorter-term loans, making higher-priced vehicles seem more attainable. However, the extended duration means that the total amount paid over the life of the loan can be significantly higher due to accumulated interest.
How 84 Month Auto Loans Work
- The buyer selects a vehicle and agrees on a purchase price.
- A lender finances the purchase, minus any deposit made by the buyer.
- The loan is repaid in fixed monthly instalments over 84 months.
- Interest rates may be fixed or variable, depending on the lender.
- At the end of the term, the vehicle is fully owned by the borrower, provided all payments are made.
Advantages of 84 Month Auto Loans
- Lower Monthly Payments: Spreading payments over seven years significantly reduces the monthly outlay, helping buyers manage their budgets.
- Access to More Expensive Vehicles: Lower payments may allow buyers to consider vehicles that would otherwise be out of reach.
- Flexibility in Personal Finances: Smaller payments can free up funds for other expenses or investments.
- Potential for Early Repayment: Some lenders allow early settlement, which can reduce total interest paid if finances improve.
Drawbacks of 84 Month Auto Loans
- Higher Total Interest: The longer the term, the more interest accumulates, increasing the overall cost of the vehicle.
- Negative Equity Risk: Vehicles depreciate quickly, and with a long loan, borrowers may owe more than the car is worth for much of the term.
- Long-Term Commitment: A seven-year loan ties the borrower to the vehicle and the payments for an extended period, reducing flexibility if circumstances change.
- Potential for Higher Interest Rates: Some lenders charge higher rates on longer-term loans due to increased risk.
Comparison Table: 84 Month vs. Other Auto Loan Terms
| Loan Term | Typical Interest Rate (APR) | Monthly Payment (on £20,000) | Total Interest Paid | Negative Equity Risk | Major Lenders in UK |
|---|---|---|---|---|---|
| 36 Months | 6.0% | £608 | £1,908 | Low | Barclays, Lloyds Bank, Santander |
| 48 Months | 6.2% | £470 | £2,575 | Low-Moderate | Barclays, NatWest, HSBC |
| 60 Months | 6.5% | £390 | £3,397 | Moderate | Halifax, Nationwide, Tesco Bank |
| 72 Months | 7.0% | £342 | £4,613 | Moderate-High | Barclays, Lloyds Bank, Santander |
| 84 Months | 7.5% | £308 | £5,872 | High | Barclays, HSBC, Lloyds Bank |
Eligibility and Application Process
- Credit Score: Lenders typically require a good to excellent credit rating for long-term loans.
- Deposit: A higher deposit can improve approval chances and reduce monthly payments.
- Vehicle Age: Some lenders restrict 84 month loans to new or nearly new vehicles.
- Proof of Income: Applicants must demonstrate stable income to support the repayment schedule.
Key Considerations Before Choosing an 84 Month Loan
- Total Cost vs. Monthly Affordability: Weigh the appeal of lower payments against the higher total cost over time.
- Vehicle Depreciation: Consider how quickly the car will lose value and the risk of owing more than it is worth.
- Long-Term Financial Stability: Assess job security and life plans to ensure the commitment is manageable.
- Early Repayment Terms: Check if the lender allows early settlement without penalties.
Alternatives to 84 Month Auto Loans
- Shorter-Term Loans: Opting for 36 to 60 month loans can save money on interest and reduce negative equity risk.
- Personal Contract Purchase (PCP): Popular in the UK, PCP agreements offer lower monthly payments and the option to return or buy the car at the end.
- Leasing: Leasing provides use of a car without ownership, often with lower monthly payments and no long-term commitment.
Tips for Managing a Long-Term Auto Loan
- Shop around for the best rates and terms from reputable lenders.
- Make a larger deposit if possible to reduce the amount financed.
- Consider additional payments to reduce interest and shorten the loan term.
- Review the loan agreement carefully for any fees or penalties.
- Regularly assess your financial situation and be prepared to adjust if circumstances change.
Frequently Asked Questions
- Is an 84 month auto loan available for used cars? Some lenders offer 84 month terms for nearly new vehicles, but restrictions may apply for older cars.
- Can I pay off an 84 month loan early? Many lenders allow early repayment, but check for any early settlement fees.
- Does a longer loan term affect my credit? Timely payments can improve your credit score, but a high loan balance for a long period may impact your credit profile.
References
The information available on this website is a compilation of research, available data, expert advice, and statistics. However, the information in the articles may vary depending on what specific individuals or financial institutions will have to offer. The information on the website may not remain relevant due to changing financial scenarios; and so, we would like to inform readers that we are not accountable for varying opinions or inaccuracies. The ideas and suggestions covered on the website are solely those of the website teams, and it is recommended that advice from a financial professional be considered before making any decisions.