An 84 month car loan spreads what you borrow over seven years, which lowers the monthly payment, raises the total interest you pay, and can keep you owing more than the vehicle is worth for longer. It can still be the right call for a buyer who keeps a truck ten years, or for a farm whose income lands once a year. Before you settle on a term, you can apply for financing and see what a lender actually offers you. Every rate and term is on approved credit, and nothing is approved until the lender says so.

The arithmetic is the same for a car, an SUV or a truck, so this works for any vehicle loan. The loan may come from a bank, a credit union or a manufacturer's finance company, and each lender sets the terms it offers. For the wider process, start with our guide to car financing in Manitoba.

Key Takeaways

• A longer term lowers the payment and raises the interest. In our worked example at an illustrative 7 percent, stretching the same loan from 60 to 84 months cuts the payment by about 24 percent and adds about 42 percent more interest. That is an example, not a quote.
• The Financial Consumer Agency of Canada (FCAC) treats 72 months or more as a long term loan, and says getting out of negative equity takes longer on one.
• The trade in trap is the balance still owing. In the same example, after four years almost half of what was borrowed is still owed on the 84 month loan, more than twice the balance left on the 60 month loan.
• A long term can fit a buyer who will keep the truck well past the last payment, or a farm whose income lands once or twice a year, when the payment is planned against the slowest month.
• A bigger down payment or a shorter term cuts the interest, and FCAC lists both among its tips.

How the Loan Term Moves the Payment and the Interest

Each monthly payment does two jobs: it pays the interest on the balance you still owe, and the rest pays the balance down. Stretch the same loan over more months and each payment gets smaller, but less of it goes to the balance. The balance falls more slowly, and interest is charged on it for more months.

FCAC sets out the trade on its page "Financial risks when buying a car": "Long-term loans come with terms of 72 months (6 years) or more. They may allow you to have lower regular car payments but consider the risks." By that measure a 72, 84 or 96 month loan is a long term loan. Whether you pay monthly or every two weeks is a separate question, and our post on biweekly vs monthly car payments covers it.

A Worked Example: 60, 72, 84 and 96 Months

Every figure in this section is an example, not a quote. The 7 percent rate is illustrative only, not a current rate or an offer, and taxes and fees are left out to keep the arithmetic readable. Say you borrow $50,000, the amount financed and not the price of any particular truck, and work out the payment for each term with the standard loan payment formula that loan calculators use. On a real truck, the amount you finance starts from a price less any applicable incentives, so check our current pricing here before you put in your own figures.

Going from 60 months to 84 months lowers the payment by $235.43 a month and adds about $3,985 in interest. Going from 84 months to 96 months saves only $72.94 a month and adds about $2,053 more. Each year you add buys a smaller payment cut than the year before and costs more interest than the year before. FCAC's own page shows the same pattern with a $25,000 car financed at 5%: $1,974 in interest over 36 months against $4,681 over 84 months. Neither set of figures is a current offer, and none is a vehicle price, which on a real truck is less any applicable incentives.

Why a Gravel Road Truck Stays Under Water Longer

FCAC defines the problem in one line: "You have 'negative equity' when your car is worth less than the amount you owe on your car loan." On a new vehicle it also warns that "After 1 year, your new car may be worth 25% less than the price you paid." And on a long loan, FCAC says, "It takes longer to get out of a negative equity situation in a long-term loan."

In the worked example, after four years of payments, almost half of what was borrowed is still owed on the 84 month loan, against under a quarter on the 60 month loan.

Now put that loan on a truck that runs 30,000 km a year on gravel and grid roads between the yard, the field and town. By the fourth year it shows about 120,000 km, and kilometres and gravel wear generally weigh on what a truck brings on trade. Whether you are under water depends on what your truck is worth that day, and that is a number to get, not a guess. You can see what your truck is worth with our instant cash offer; we honour the instant cash offer, and the number you get online is the number we stand behind when the vehicle matches what you told us.

When a Long Term Loan Is the Right Call

A long term trades more interest for a smaller payment, and for some buyers that trade is worth making.

You keep trucks ten years. If you plan to drive the truck well past the last payment, the trade in trap matters less, because you are not trading while the balance is high. You still pay the extra interest. What you get for it is a smaller payment that leaves room in the budget for fuel, tires and insurance.

Farm income lands once a year. A grain operation near MacGregor or Elie may see most of its money after harvest and when the crop is sold, while a truck payment is due every month, January included. A smaller fixed payment can be easier to carry through the lean months. Ask our team whether a lender has a payment schedule that fits seasonal income.

A low promotional rate comes with the term. A manufacturer offer sometimes puts a low rate on a longer term, and the lower the rate, the less the extra months cost. Current offers are on our finance deals page; read each offer's terms and end date, and remember every rate is on approved credit.

Our advice: if you take a long term, set the payment against your slowest month, and put extra money on the balance when the cheque lands, if your contract allows extra payments without a charge.

How a Bigger Down Payment or a Shorter Term Changes the Picture

Among its tips to reduce the risks, FCAC lists "choose the shortest term loan you're able to afford", "if possible, put a down payment" and "consider both options of buying a new or used car".

Here is what the first two do to the worked example, still at the illustrative 7 percent and still an example, not a quote. Put 20 percent of the amount down and borrow the other 80 percent:

• Over 84 months: the payment and the total interest both fall by a fifth against borrowing the full amount over the same term.
• Over 60 months: the payment is only about 5 percent higher than the full amount over 84 months, the total interest is about 44 percent lower, and the loan is gone two years sooner.

A trade with equity works like cash down, because it lowers the amount you borrow. And if a payment only works at 96 months, a truck from our used inventory on a shorter term may cost less in the end.

The Trade In Trap at the End of the Term

Four years into an 84 month loan, the truck has the kilometres and a new one starts to look tempting. In the worked example, almost half of what was borrowed is still owed at that point.

We take trades with money still owing; the balance is handled as part of the deal. If the vehicle is worth less than what is owed, the difference still has to be paid, or it may be added to the amount financed on a new loan, increasing the amount borrowed and potentially the total cost of borrowing. FCAC's tip list says it plainly: "avoid trading in your car if you're in negative equity". Our guide to trading in with money owing walks through how the payout works in Manitoba.

Our advice: before you trade, get the payout figure from your lender and a real value for the truck, and compare the two. If the value is short, a few more months of payments, or extra payments when you can, may close the gap before you trade.

FAQs

Is an 84 month car loan a bad idea?

Not always, but it costs more. An 84 month car loan lowers the monthly payment and raises the total interest, and the Financial Consumer Agency of Canada says getting out of negative equity takes longer on a long term loan. It can fit a buyer who keeps the vehicle well past the last payment, or one whose income lands once or twice a year.

How much more interest does an 84 month loan cost than a 60 month loan?

In our worked example, about 42 percent more. Borrowing the same amount at an illustrative 7 percent, the interest over 84 months comes to about 1.4 times the interest over 60 months. That is an example, not a quote, and your own rate and term are on approved credit.

What happens if I trade in a truck before an 84 month loan is paid off?

The balance still owing has to be paid out when you trade; we take trades with money still owing and handle the balance as part of the deal. In our worked example, almost half of what was borrowed is still owed after four years of an 84 month loan. If the vehicle is worth less than what is owed, the difference still has to be paid, or it may be added to the amount financed on a new loan, increasing the amount borrowed and potentially the total cost of borrowing.

Does paying extra on an 84 month loan save interest?

Generally, yes, when your contract allows extra payments. Interest is charged on the balance you owe, so money put on the balance lowers the interest that follows and shortens the loan. Read the prepayment terms in the loan agreement before you sign to see whether extra payments or an early payout carry any charge.

When does a long term car loan make sense?

When you will keep the vehicle well past the last payment, or when your income lands once or twice a year and a smaller fixed payment is easier to carry through the slow months.

The Bottom Line

An 84 month car loan buys a smaller payment with more interest and a balance that stays high for longer. It can make sense if you keep the truck for the long haul or your income arrives in a lump, and it bites hardest if you trade early. Run the numbers on the shortest term you can carry in your slowest month.

Wherever you are in Manitoba, you can apply for financing online with Dunn Ram Trucks in Portage la Prairie and compare terms on what a lender offers you, on approved credit. If a trade is part of the plan, check your truck's value with our instant cash offer before you pick a term.

Tyler Dunn, Dunn Ram Trucks, Portage la Prairie