By on February 6, 2014

Experian HQ

Just over five years after the Great Recession tightened consumer lending standards on everything from cars to houses, Experian Automotive is forecasting growth in the subprime market for 2014, including longer loan terms and increased delinquencies.

Automotive News cites Experian Automotive Senior Director of Automotive Credit Melinda Zabritski as saying that most vehicle financing is still in the prime lending market, butthe subprime market continues to grow as more lenders return to the space vacated en masse back in Q3 2008. Whether the market continues to grow depends on how many of those loans go into delinquency, though Zabritski expects a modest increase in delinquencies this year in comparison to the run-up to Q3 2008 beginning in 2007.

As far as the length of those loans are concerned, she sees 72-month terms becoming common as lenders compete for business while consumers negotiate for favorable monthly payments. The average term loan currently holds at 65 months, but Zabritski sees that average steadily climb as more 72-month loans are made with no sign of stabilizing five years forward, and terms over 100 months emerging soon.

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39 Comments on “Experian: Subprime Financing, Delinquencies To Grow in 2014, 100 Month Terms Coming Soon...”


  • avatar
    brettc

    100 months? No. That’s an 8 and 1/3 year loan. If lenders actually offer those terms and people take them, we have no hope as a society. 72 should be the limit. But what do I know, I like to try and save money and not be stuck making car payments for over 8 years.

    • 0 avatar
      Land Ark

      No no, you’ve got it all wrong. No one is actually paying for their car for 8 years. They get the 100 month terms for their new CUV and then in 4 years, when some routine maintenance is required, they simply trade it in on a new CUV and roll the rest of the loan into the next one. So until they declare bankruptcy or just stop paying they are likely paying for these cars for 20 years.

      We’re a nation of financial idiots. Someone might as well make some money off of it – for a few years until the whole thing collapses again.

      • 0 avatar
        OldandSlow

        Land Ark – I wonder if banks would be so quick enter the sub prime arena, if the US Treasury had not bailed them out during the winter of 2008/2009.

        • 0 avatar
          Land Ark

          Most of them would be gone because of how much money was involved, so no.
          But since they were bailed out, lesson learned, let the money flow!

        • 0 avatar
          RogerB34

          The Fed required all banks to take TARP funds. Required. In fact, the bank “bailout” involved a half dozen big depositor banks and investment banks. Banks that took subprime risks in mortgage loans, mortgage backed securities and those that gambled with MBS derivatives.
          True a nation of financial idiots. Mid 60′s household debt to income ratio was about 65 percent, ’80′s about 85 percent, 2007, 133 percent, now around 90 percent.
          Let private lenders take the risk but don’t bail lenders or borrowers out.

          • 0 avatar
            David Walton

            TARP/SBLF/CDCI were manifested as preferred equity, not a liability.

            Next time use the word “bankster” in your jeremiad – the receptive audience expects it.

      • 0 avatar
        brettc

        Yeah, I unfortunately figured that’s how it would play out. It just makes it so people can pay around $400/month on a $35000 loan (assuming they qualify for a lowish rate). I suppose it might help some people make car ownership a possibility while they increase their income, and for others it’ll just propagate the endless car payment cycle.

  • avatar
    johnhowington

    who’s fault is it if the buyer agrees to the terms?

  • avatar
    bryanska

    Hm, a 100 month loan at 1.99% on a 10-year warrantied gas efficient car… sounds good for someone whose needs and income are fairly stable.

    • 0 avatar
      highdesertcat

      These days, NO ONE’s income is stable since the US Dollar is worth less as each day passes. Those who are employed today may be unemployed tomorrow, union or no union.

      Even retirees and others living on a fixed income are constantly besieged by higher out-of-pocket expenses driven my government mandates and regulations.

      100-month loans may be the wave of the future because the government will bail out failed entities with taxpayer money since the precedent was set in 2008.

      • 0 avatar
        bikegoesbaa

        Wouldn’t a long repayment term make more sense the more the dollar falls?

        Seems that if a buyer believes that inflation will exceed their (fixed) interest rate, wouldn’t they want to maximize the loan term as long as possible.

        Why pay the bank back X amount of 2014 dollars when you can instead pay them the same X amount of presumably less valuable future dollars?

        • 0 avatar
          highdesertcat

          bikegoesbaa, a long repayment term would indeed make more sense the more the dollar falls, as long as no one defaults on their loans and repays according to schedule.

          But we already saw what happened in 2007 and 2008 when so many people defaulted on loans and mortgages to where Uncle Sam had to step in and keep many lenders afloat.

          The 100-month loans for cars will become a reality because the industry needs those loans in order to sell cars and stay afloat. And all will work well until the next financial crisis hits.

  • avatar
    Onus

    I don’t think subprime buyers are getting these 100 month loans.

    These seam to be merely tools for prime buyers to save money.

    Heck I’d do it but i would have no problem keeping a vehicle for 10+ years. 20 even.

    But, i can repair my own vehicles and save labor costs. Parts are usually a drop in the bucket.

    • 0 avatar
      Pch101

      The current trend in the ABS auto loan market is for the longer loan terms to go to subprime borrowers. The deep subprime don’t get them because they’re too risky, while the prime loans aren’t considered to be prime if the terms are too long.

      Subprime is the hot segment in auto lending, because it has the greatest growth potential. Lengthening the loan terms is a basic tool for increasing loan volumes.

    • 0 avatar
      kmoney

      I would consider one of these long terms as well, as long as they had open payment terms. The low monthly payment provides security against not being able to cover a payment or allows to have money for other things, but you could still pay it off in less that 8 years if you so desired. If however it was a fixed payment structure (as I’m guessing most of these are) then no way, as the interest would be nuts.

    • 0 avatar
      redav

      The longer the term, the higher the rate because payback risk goes up.

      If someone is good enough with their money to not be a subprime borrower, I suspect they would not opt for one of these loans regardless.

  • avatar
    dude500

    The general assumption is that people would buy extravagant cars rather than practical cars, but do people really buy more car than they can afford? I mean, defaults on auto loans are fairly small, and have been consistently low even through the crisis. And at least on TTAC, it seems like everyone would be sensible and get a 60 month loan.

    When I first read this, I thought that it allows someone who couldn’t afford a $14k Fiesta for work, to finally be able to do so. But maybe I’m being too optimistic on society?

    • 0 avatar
      toxicroach

      100 month term at 5% for 14000 is 171.47.
      50 months at 5% is 310.76.

      I’d expect the 100 month term would be usually be for full size trucks. They can easily get into the 40000 range, and extending the loan that far puts it into large but theoretically doable space for people. I see two kinds of stupid car loans; the upside down trade in and the guy who wants a big truck and has a small paycheck.

      • 0 avatar
        Pch101

        A lot of car loans have LTVs of over 100%. That reflects car loans that combine the purchase of a new car with an upside-down trade in.

        Of course, there is a correlation between LTVs and default rates, so there will be a limit to how far this can go.

    • 0 avatar
      redav

      The studies of average price & average income show percentages above the “affordable” line. However, I have doubt those studies were done correctly, so who knows.

      As has been pointed out, people are more likely to pay their car note than their mortgage. It means that although they make payments on the car, doesn’t mean they can actually afford it.

    • 0 avatar
      charly

      The monthly payment is what they can afford. Longer term means they can afford more

  • avatar
    velvet fog

    Too many people trying to live like Kardashians on 30K per year salary. Yes you can afford the Escalade with double dubs for $250 a month for 9 years. Too bad it will be a rotting pile of junk after 6.

  • avatar
    Carrera

    100 months loans are not unheard of in Canada where cars are 20-30% more money than in USA and destination charge runs into 1500-2000 per vehicle. Oh, I forgot sales tax 15%. When I moved here, I thought I was in an alternate universe. People on average make the some amount of money as in the USA, but housing is more, food is more, energy is more, everything is more money. What choice do they have?

    • 0 avatar
      Onus

      Yikes crazy destination charge. Even here in New England we have much smaller destination charge ( it not like Canada is very far away either ), and tax we are one of the most expensive part of the country.

      Remind me not to move to Canada.

      • 0 avatar
        Pch101

        The higher Canadian destination charge is a sort of hidden exchange rate fee. The use of a different currency is what contributes to these higher prices.

        • 0 avatar
          Onus

          I don’t think that is quite it.

          Cars still cost more with exchange rate, and i don’t remember Canada having inclusive tax in the price.

          Canadian built cars cost less in the US then they do in Canada. Australian cars do evidently do as well ( SS ).

          • 0 avatar
            Pch101

            Canadians are well aware that they pay more for cars than Americans do, and they don’t like it.

            They especially don’t like it at times when the looney is close to parity, and they don’t see their prices falling accordingly.

            Automakers don’t want to adjust prices directly around real-time exchange rates, as a falling looney would force dramatic price increases, which would upset the customers even more. (Consumers like the upside of a strong currency, but don’t want to pay for a weakening one.)

            Accordingly, it’s easier for the automakers to be conservative by assuming a somewhat poor exchange rate, and then inserting more “fees” elsewhere in order to create even more cushion. Sticking the entire brunt of the hit into the MSRP looks that much uglier.

            If Canadians and Americans shared a currency, there would probably be no price difference at all, but for the higher taxes paid in most of Canada. But automakers have to deal with FX, and don’t want to get stung if rates move more than expected.

  • avatar
    seabrjim

    Um…the choice to not move there?

    • 0 avatar
      Carrera

      Seabrijim,
      I wasn’t really talking about “what choice do I have”. I am only here on a contract with my job and when my contract is over in 2015, I will go back home to Florida. I don’t buy anything in Canada but bread, gas, milk and vegetables. Everything else I get from USA…electronics, furniture, meats..etc..etc. I definitely will not buy cars here. I was really talking about the people that are from Canada and have to live here.

  • avatar
    sirwired

    I don’t have any problem with six-year loans at all. It’s silly to still recommend never financing longer than four years even though cars last at least twice as long as when that recommendation was first made. Eight years? Borderline.

    But 10-year auto loans? The borrower will be upside down for far too long that either the necessary risk-pricing will make it a raw deal for the borrower, or the lender and borrower are both going to take it in the proverbial shorts every time one of these borrowers totals their car.

  • avatar
    Dawnrazor

    I can’t see how this won’t cause a lot of pain. I’ll bet that a lot of the vehicles that end up being financed with these terms will be high-end Euro stuff, and the real pain will commence within 4-5 years (only halfway into the term) as warranties expire and expensive repairs and maintenance start becoming incresingly frequent. It would be a real bummer to have 1) a nonfunctional vehicle parked in the driveway because the owner can’t afford to fix it, 2) a functional vehicle that is rapidly deteriorating because unaffordable maintenance gets deferred, or 3) a vehicle that simply cannot be disposed of because there’s 4 years worth of payments remaining and it’s in depreciation free fall, worth a mere fraction of what’s owed.

    The only situation in which such long loan terms might be remotely feasible would be for the purchase of a vehicle which has a proven track record of extreme longevity and reliability (maybe something like a Land Cruiser) that the owner intends to keep for the duration, but even that would seem like a stretch.

    The words penned back in 1978 by those guys from Akron who wore funny plastic hats certainly seem to apply in this situation!

  • avatar
    Big Al from Oz

    Where are the US’s responsible financial regulators?

    Wow, talk about really poor decision making.

  • avatar
    AJ

    I was in the mortgage industry before the housing crisis. The crisis was really about giving loans to people that had no business owning a home, or at least too much of a home. When I hear a growing subprime market for cars, that just reminds me of it. But hey, for those of us that pay our bills and live within our means, we just get stuck paying for it all through higher prices, inflation and taxes. How wonderful.

  • avatar
    seabrjim

    How upside down would a 750 i buyer be after 4 years? Yikes!

  • avatar
    doublechili

    100 month car loans? Great, just like South America. Next they’ll be shipping us container-loads of used parts from overseas stolen cars. Now all we need is a benevolent dictator to promise great things to the masses while the elite few get richer and richer.

    Oh, right. Never mind that last bit.

  • avatar
    Zykotec

    I’m not sure if anyone in Norway has ever bought a brand new car for cash, but if they did, they were probably lottery winners. A 7 year loan on a new car is completely normal. 3-5 years is more normal for a 6-7 year old used car, but banks prefer that you have finished paying down the car before it’s 13 years old. (the average car on Norwegian roads is more than 10 years old)
    But, offcourse, a new golf starts at 40K,a stripper Mondeo at 45k, a euro Accord (TSX)starts at 65k…same as My ’07 CRV cost when it was new, I bought it in December for roughly half of that.But that is about half of what I make a year before tax, unless I get a lot of overtime, and my job pays below average…
    I guess what I’m saying is, if the average age of cars rise, and used car prices go up, there is little risk in it for the banks to give people longer terms. With interests they make money no matter what.

  • avatar
    seabrjim

    Carrera, glad to hear its temporary. Doesnt sound like its easy to hold on to your money in Canada.


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