7 Year Car Loans: Should You Consider Them?

7 year car loans are growing in popularity, allowing consumers to get lower monthly payments by stretching loans out longer. But are they a smart choice? This comprehensive guide examines the pros and cons of 84 month auto loans to help you decide.

Overview of 7 Year Car Loans

Most car loans typically range from 3-6 years. But some lenders now offer 7 year terms, which represents 84 monthly payments. They appeal to buyers because they lower the monthly payment by spreading it over a longer period. But they also carry risks.

Lower Monthly Payments

The main allure of 7 year auto loans is the lower monthly payment. For example, on a $40,000 vehicle, monthly payments would be:

  • 5 year loan: $742
  • 6 year loan: $617
  • 7 year loan: $530

By extending the term, a buyer can afford a more expensive vehicle while keeping payments manageable. This helps those on tight budgets.

Higher Interest Costs

The trade-off for smaller monthly payments is higher interest paid over the life of the 7 year loan.

For example, with a 5% interest rate, the total interest paid is:

  • 5 year loan: $5,762
  • 6 year loan: $7,004
  • 7 year loan: $8,173

So the longer term costs an additional $2,000+ in interest. Always compare rates and do the math before committing.

Vehicle Depreciation

Most new vehicles lose roughly 40% of value in the first 3 years. This means after a few years, the loan balance may exceed the car's resale value.

If the buyer faced financial hardship and needed to sell, they could owe more than the vehicle is worth. This is being "upside down" or having negative equity.

Mechanical Issues

As vehicles age, the risk of costly repairs rises. With a 7 year term, the owner will be stuck with a high-mileage, potentially unreliable 8-10 year old car at the end.

Major issues like transmission failure could leave the owner still making payments on an undriveable car.

Difficulty Getting Out of Loan

Being upside down on a loan makes it very difficult to sell or trade in the car. No buyer will pay above market value. This restricts options if the owner needs to exit the loan for any reason.

They may need to put in extra cash upfront to pay down the loan first. Otherwise they are stuck paying on a car they no longer own.

Who Should Consider 7 Year Car Loans?

  • Buyers on a very tight budget - The lower payment helps purchase the needed vehicle
  • Those who plan to keep car long term - Depreciation and negative equity isn't an issue if driving for full term
  • Purchasers of very reliable vehicles - Less risk of major repairs before loan ends

For most other buyers, the additional total interest paid and risks of depreciation make shorter term loans a better choice. Weigh your situation carefully before opting for a 7 year car loan.

FAQs

How much more interest is paid on a 7 year vs 5 year auto loan?

The longer the loan term, the more interest you will have to pay on it, both in terms of the rate itself and the finance charges over time. However, the exact amount of interest paid on a 7-year vs 5-year auto loan is not mentioned in the search results.

What happens when you owe more than the car's value?

When you owe more on your car loan than its current value, you have negative equity in the car. This is also known as being upside down on your auto loan. Some car dealers may promise to pay off the negative equity on your old car loan when you trade in your old car, but they may just roll over the negative equity into your new car loan, so you still end up paying it.

What are the risks of negative equity on a car loan?

The risks of negative equity on a car loan include:

  • Higher monthly payments and interest rates over the lifetime of the loan.
  • Difficulty trading in or selling the vehicle until you have positive equity.
  • Being penalized for paying off loans before the end of the loan period.

How many more months is a 7 year loan compared to 5 years?

A 7-year loan is 24 months longer than a 5-year loan.

How much do new cars depreciate in the first 3 years?

New cars can depreciate in value by as much as 20-30% in the first year and up to 50% or more in the first three years, depending on various factors such as the make and model of the car, the condition of the car, and the market demand for the car.

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