Is 84 Month Financing a Good Idea? Pros and Cons Explained

Introduction

84 month financing is a relatively new option for consumers looking to buy items such as cars or appliances. As its name suggests, this type of loan allows borrowers to pay off their purchases over a period of 84 months, or seven years. While this can be an attractive option for many people, it’s important to understand the implications of taking out such a long-term loan before making any decisions. In this article, we’ll explore the pros and cons of 84 month financing and help you decide if it’s the right choice for you.

Analyzing Pros and Cons of 84 Month Financing

When evaluating whether or not 84 month financing is a good idea, it’s important to consider both the advantages and disadvantages of taking out such a long-term loan. Let’s take a look at some of the key pros and cons.

Benefits of Financing Over a Longer Period

One of the main benefits of 84 month financing is that it allows borrowers to spread out their payments over a longer period of time. This can make it easier for people to manage their finances and make their payments on time. According to a survey by Experian, “the majority (63%) of respondents said they would prefer to finance a purchase over a longer term in order to reduce their monthly payments.”

Potential Drawbacks of Long-Term Financing

While there are certainly benefits to taking out a loan over a longer period of time, there can also be drawbacks. For example, taking out a loan over a longer period of time means that you’ll be paying more in interest over the life of the loan. Additionally, since the loan will take longer to pay off, you may find yourself stuck with an item that’s no longer useful or desirable after a few years.

Exploring the Financial Implications of Long-Term Financing

In addition to understanding the pros and cons of 84 month financing, it’s also important to consider the financial implications of taking out such a loan. Let’s take a look at some of the key factors to consider.

Interest Rates

The interest rate on a 84 month loan will vary depending on the lender and your credit score. Generally speaking, the higher your credit score, the lower the interest rate you’ll be offered. It’s important to do your research and shop around to ensure you’re getting the best rate possible.

Loan Terms

It’s also important to understand the terms of the loan you’re taking out. Make sure you understand what fees and penalties may apply if you miss a payment or need to pay off the loan early. Additionally, make sure you understand if the interest rate is fixed or variable and if there are any prepayment penalties.

Monthly Payments

Finally, consider your monthly budget and make sure you’ll be able to afford the payments. Remember that the longer you take to pay off the loan, the more you’ll end up paying in interest over the life of the loan.

Examining Consumer Trends in 84 Month Financing

In recent years, there has been an increase in the number of consumers opting for 84 month financing. Let’s take a look at why this might be the case and what it means for borrowers.

Popularity of 84 Month Financing

According to data from Experian, “the percentage of auto loans taken out with terms of 75 to 84 months increased from 17.1% in Q3 2017 to 25.1% in Q3 2019.” This indicates that more and more people are opting for longer term loans when financing large purchases such as cars.

Reasons for Increased Use of Long-Term Financing

There are a few reasons why this trend may be occurring. For one, it’s likely that lenders are offering more attractive terms on these loans, making them more appealing to borrowers. Additionally, with the rise of online lending, it’s become easier than ever to get approved for a loan with a longer term. Finally, with the cost of living increasing, many people are finding it difficult to manage their finances and are turning to longer term loans to make ends meet.

Identifying Potential Pitfalls of 84 Month Financing

While 84 month financing can be a great option for some people, it’s important to understand the potential risks involved. Here are some of the key things to be aware of.

Higher Interest Rates

As mentioned earlier, the interest rate on a 84 month loan will usually be higher than on a shorter term loan. This means that you’ll end up paying more in interest over the life of the loan.

Negative Impact on Credit Score

Taking out a long-term loan can also have a negative impact on your credit score. Since you’ll be taking on more debt, your credit utilization ratio (the amount of debt you have compared to your total available credit) will increase, which can hurt your score. Additionally, if you miss a payment or are late on a payment, your score will suffer.

Difficulty Making Payments

Finally, it’s important to remember that if your financial situation changes, it can be difficult to make the payments on a long-term loan. If your income decreases or you experience an unexpected expense, you may find yourself unable to make your payments on time.

Investigating the Benefits of 84 Month Financing

Despite the potential risks of 84 month financing, there are also some potential benefits. Let’s take a look at some of the key advantages.

Lower Monthly Payments

The main benefit of a 84 month loan is that it allows you to spread out your payments over a longer period of time, resulting in lower monthly payments. This can make it easier to manage your finances and budget for the loan payments.

Reduced Risk of Default

Additionally, because the payments are lower, there is less risk that you’ll default on the loan. This can be beneficial if you’re worried about your ability to make timely payments.

Improved Cash Flow

Finally, taking out a longer term loan can improve your cash flow. By reducing your monthly payments, you’ll have more money available to cover other expenses or invest in other areas.

Understanding the Risks of 84 Month Financing

Although there are potential benefits to 84 month financing, it’s important to understand the risks involved as well. Here are some of the key things to keep in mind.

Longer Timeframe to Pay Off Loan

One of the main risks of taking out a long-term loan is that it will take longer to pay off the loan. This means that you’ll be paying interest on the loan for a longer period of time, resulting in higher overall costs.

Total Cost of Loan

Additionally, it’s important to consider the total cost of the loan. Remember that the longer you take to pay off the loan, the more you’ll end up paying in interest. Make sure you understand the total cost of the loan before signing on the dotted line.

Possibility of Early Repayment Penalties

Finally, be aware that some lenders may charge early repayment penalties if you choose to pay off your loan ahead of schedule. Be sure to read the terms of your loan carefully and understand any potential penalties before signing on the dotted line.

Comparing 84 Month Financing to Other Options

Before deciding whether or not to take out a 84 month loan, it’s important to compare it to other financing options. Let’s take a look at some of the key differences between 84 month financing and other types of loans.

Short-Term Loans

Short-term loans typically have higher interest rates and require larger monthly payments. Additionally, they generally have shorter repayment periods, meaning you’ll have to pay off the loan sooner. However, they also typically have lower total costs, as you’ll be paying off the loan in a shorter period of time.

Credit Cards

Credit cards offer more flexibility than short-term loans, as you can use them for purchases and make payments over time. However, they also typically have higher interest rates and can carry higher fees. Additionally, it’s easy to get into debt with a credit card and it can be difficult to pay off the balance.

Leasing

Finally, leasing is another option for financing large purchases. With a leasing agreement, you’ll make regular payments over a set period of time and then return the item at the end of the lease. This can be a good option if you don’t want to commit to owning the item, but it’s important to understand the terms of the lease before signing on the dotted line.

Conclusion

When it comes to financing large purchases, 84 month financing can be a great option for many people. Before making any decisions, however, it’s important to understand the pros and cons of this type of loan, as well as the financial implications and potential risks. Additionally, it’s important to compare 84 month financing to other options such as short-term loans, credit cards, and leasing agreements. Ultimately, the decision to take out a 84 month loan will depend on your individual circumstances and needs.