84 month auto loans
American auto industry is in the doldrums. With the declared bankruptcy of General Motors the horizon is ominous. But despite this down trend the purchase of cars among the American's has not shown any significant reduction. This is perhaps because of the new finance schemes that are available to purchasers. Most Cars purchased in America are financed. It means there is a loan and some form of mortgage exists on the car. With the economy sliding down and real income a large number of Americans on the down swing buying a car with a longer mortgage can be considered. Thus the companies have come out with the 84 month mortgage. In real terms it means that you pay for your car for 7 years and only after that the loan is extinguished. An 84 month loan is a necessity for the car manufacturers as they would like the stock of cars on their shelf to get cleared. As things stand most of the deals for car loans hover around 60 months. Certainly this is the most popular recipe. But statistics show that about 25% of loans now extend beyond 60 months to 72 and even 84 months.
84 month auto loans are an enticing proposition. They are like a double edged sword and can cut the buyer both ways. They certainly have some advantages, but have a negative side as well. Before you go in for an 84 month loan on your car please be clear of all pros and cons. A lot of people go in for 84 month loans and then get badly singed. So the watch word is prudence. It should not happen that an 84 month car loans lowers your credit rating or you get into a bit of a financial mess.
Firstly let me highlight the negative aspects of an 84 month car loan. Later we shall also see what the advantages are. When you go in for an 84 month car loan the first thing you must remember is that you have increased the period of your liability. In other words your car loan will extend to 7 years. Keeping in mind that the average life span of a car in America is 5and ½ years this extra period will have a negative effect on the value of your car. One thing we must all be clear about is that the value of a new car does depreciate over a period of time. In fact the depreciations start from the time the car comes out of the show room. This is something that must be understood. Depreciation is the book value of the car. Thus the moment a car is bought by you and come out on the road its value goes down by 20%. This depreciation continues going down year by year. The second year depreciation is 15 % and so on every year. After the fifth and sixth year the value of the car would have been greatly reduced but in your case the EMI (equated monthly installment) would be the same. This depreciation must be taken into account. For in case you wish to trade or sell the car the mortgage would have to clear by you. In the light of the life of an American car of 5 years or so this amounts to taking a sock on your nose. Also bear in mind that research has shown that the average trade cycle in the United States is about 30 months. So in case you have an 84 month mortgage on your car then you could be a loser.
The second negative point against is the amount of interest that you will have to pay to the dealer. Generally as an axiom the moment you finance your car for a longer period says 84 months then the APR will be higher. Why? You may well ask. The fact is that the longer the finance period then greater is the risk undertaken by the lender. Thus you will end up paying a lot more interest than a conventional 60 month mortgage. So coupled with the fact of higher depreciation and greater interest the 84 month mortgage may not appear that exciting.
But in certain conditions an 84 month loan payment could help you out. With the advent of 2009 and the hardships faced by car manufacturers, the options have become very limited. This has resulted in an increase in the basic price of the new cars. So in case you have set your eyes on a particular model and find its price beyond your budget then going in for an 84 month option is a good idea. And as the cars become more expensive the 84 month option is also increasing. Nick Stanutz, executive vice president of Huntington National Bank in Columbus, Ohio has stated that almost 33% of all car loans given by his bank are more than 60 months duration. Also he says that about 4% of his car loans extend beyond 60 and 72 months to 84 months.
One of the biggest advantages of an 84 month loan is the lower EMI they offer. Though the APR is marginally higher, yet when the monthly EMI is worked out the 84 month option will give a lower monthly pay out than a 60 month mortgage. This could be a boon for you in case you desire a more expensive model and cannot sustain a higher EMI.
However keep a few points in mind when you go in for an 84 month loan. Carry out a survey and see that the car model you are buying is a current model and not likely to be phased out in say 5 or 6 years. Do bear in mind that the payments are affordable as seven years is a fairly long time to pay.
Also do go in for gap insurance. It is insurance that covers the difference in the market value of the car and the amount of money that you owe to the insurance company. It can be help in case your car is a total loss in an accident. This will be a great help in an 84 month loan.
Lastly whatever you do study the entire scenario and make your options.