American Car Buyers Can't Get Enough of Long-Term Car Loans

The low, low monthly payments offered by spreading the cost of a new or used vehicle across a vast gulf of time is certainly an attractive one, even though the practice is fraught with hidden danger.

For U.S. car buyers, it has also become a very popular one, with data showing just how many people have decided to embrace a 73- to 84-month payment plan. Not only are their spending habits changing, they’re also changing their lender.

According to data from information services company Experian published by Automotive News, long-term loans are proving increasingly popular with both new and used car buyers.

In the first quarter of 2009, the depths of the recession, 11.7 percent of auto loans were 73 to 84 months. At the time, consumer spending was not what it once was (or is now), with even stably employed people holding off on big ticket items like vehicles. Fast-forward eight years, and the picture changes drastically.

During the first two months of 2017, 33.8 percent of new-vehicle loans fell within this category. Not only that, term lengths within that top period are on the rise. Karl Kruppa, a senior automotive solutions consultant for Experian, says a full three-quarters of new-car loans in the fourth quarter of 2010 were 73 to 75 months. Now, borrowers are increasingly tapping the ceiling of that term window. In the final quarter of last year, 28.7 percent of those loans were for the full 84-month term, up from 17.1 percent in Q4 2010.

The trend carries over into used vehicles. While 30 percent of loans for 2016 model year vehicles fall within the 73 to 84 month term window, some lenders are now offering long-term loans on vehicles up to seven years old. Minuscule payments, yes, but with a larger cost of borrowing over the long term. With this kind of deal, be it on a new or old vehicle, cash-strapped buyers can find themselves in a much nicer vehicle than they thought they could afford — only to be soaked by interest or to realize their vehicle is worth less than what they owe.

Whatever the vehicle, consumers are increasingly turning to credit unions for their long-term loans. While banks and automakers’ financial divisions still see plenty of demand, credit unions see the most. Auto loans of 73 months or more made up 30.8 percent of the credit union portfolio in Q4 2016. For even longer-term loans, credit unions are still the preferred go-to.

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