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Long-term loans are becoming more popular these days. It’s unsurprising, considering the price of new and used cars has increased in the past few years. Experian reported that over 30% of borrowers that financed cars in the third quarter of 2020 took out 73-84-month loans. However, sometimes, an even longer 96-month auto loan term is available. But is it really a good idea to take out an eight-year loan?

Pros of a 96-month car loan

A leasing and sales office at a dealership.
A leasing and sales office at a dealership. | Getty Images

First, let’s break down the advantages of taking out a 96-month auto loan. Here are a few of the pros of a long-term loan, according to Jerry:

  • Lower monthly payments: The main reason anyone would want to take out a 96-month loan is for the lower monthly payments. Why pay $416/month on a $25,000 car when you can pay $260? Paying less every month will free up some money in your monthly budget for other expenses.
  • The ability to qualify for a more expensive vehicle: By opting for a longer auto loan term, you’ll be able to afford a more expensive vehicle since the monthly payments will be lower.
  • More financial flexibility: With a lower monthly payment, you will have more money to spend on groceries and other needs.

As we can see, there are a few advantages to taking out a 96-month term. However, they mostly reside in having a lower monthly payment.

Cons of a 96-month car loan

Ram 1500 full-size pickup truck models on the Mak Haik dealership lot in Houston, Texas
Ram 1500 models on a dealership lot | Brandon Bell/Getty Images

For every positive, there’s a negative. And when it comes to a 96-month loan, there are a few cons:

  • High-interest rates: The interest rate you receive for any loan term will vary depending on your current credit status. But for a 96-month term, you can expect to get a rate that’s around one to two points higher than the lower terms.
  • More interest will accrue over the loan term: Having a higher interest rate over the course of 96 months will result in paying more for interest when it’s all said and done.
  • Fewer lenders give out 96-month loans: Not every lender can quickly hand out a 96-month loan term. You may need to qualify with certain lenders to obtain one.
  • Negative equity for a longer period of time: The car you finance will depreciate over time. With a 96-month loan term, there’s a chance that the car’s negative equity will be carried over a longer period of time.
  • The car will be out of warranty: Most new-car and powertrain warranties are only good for up to around 60 months. With a 96-month term, the car will be out of warranty for the last three years of the term.

Is taking out a 96-month loan term a good idea?

A Toyota Tundra sits outside Bill Walsh Toyota in Ottawa, Illinois, U.S., on Tuesday, Sept. 3, 2013. Photographer: Daniel Acker/Bloomberg

Although the lure of having lower monthly payments make a 96-month auto loan term look attractive, it’s not a good idea. As stated before, the lower monthly payment amount is the main draw to this type of loan. If you’re in a position where you can pay off the loan quicker than 96 months, then it could work. However, if you plan only to make the minimum payments, there’s a chance the loan will end up costing far more than the car is worth in the end.