Dealers: Lengthy Long-Term Financing A Necessary Evil

TTAC Staff
by TTAC Staff
dealers lengthy long term financing a necessary evil

Though many a dealer knows lengthy long-term financing is a bad deal for all involved, Automotive News reports that attendees at the recent American Financial Services Association’s Vehicle Finance Conference in New Orleans acknowledged that such financing is necessary to do business.

Longer terms and low interest rates have kept the average monthly payment on those loans flat despite increases in loan terms used to finance a new or used vehicle purchase. Currently, the average length of a loan for a new car is at 65 months (used cars are at 61 months), but the fastest-growing category are loan terms from 72 to 84 months, which are likely to leave consumers upside-down come trade-in time; brand and dealership loyalties are also affected negatively by this category.

As for why dealers continue to offer superlong-term financing, varying factors in each consumer, like credit scores and trade-in issues, contribute to the need to offer options in order to make a purchase or lease affordable for the consumer.

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  • AJ AJ on Feb 07, 2014

    There is a repo lot near my house. It just amazes me to see it when I drive by as it's always swamped with cars, and even some RVs, boats and an occasional horse trailer. Could that in some way be a result of long-term financing? Get tired of it and just let it go?

  • Joeb-z Joeb-z on Feb 07, 2014

    My experience two weeks ago is that I could buy a Maxda CX-5 at about $300 below "dealer cost" (including all bs conveyance fees and such) and then get the finance deal at .9% of 60 months on the whole shebang ($100 down). I typically own a car for ten years and could pay cash. Having bought at the right price, why not take a finance deal that allows a profit with the invested money. Always negotiate the price first, then the financing. It's simple.

  • Steven Lang Steven Lang on Feb 08, 2014

    There are so many left hand turns in this thread, I wouldn't know where to start. First off, a $50,000 income for one young person would be fantastic in most parts of the United States. The problem is most young people earn maybe $20,000, if that, a year. The ones who earn a lot more and live in major metropolitan areas either live at home, with other family, or have roommates. That was the norm back in the mid-90's (adjusted for inflation), and is still the norm today. Nearly everyone struggles to varying degrees when they're in their 20's. The only difference, besides the number of open jobs, is that yesterday's receptionist and Walmart associate, has become today's barista and Walmart associate. The second issue highlighted by a lot of folks here, is that easy credit and deep sub-prime lending have unleashed the unintended effect of making used cars more expensive. This is true for houses as well. However housing in particular is heavily subsidized by the US government, while cars are only given limited subsidies. Finally, there are gaping holes of opportunity to buy a cheap car in the used car market. The question is whether you want to put your money into a new car (at 0% interest, 5 to 10 year notes, etc.) or do you want to save up, buy used for cash, or acquire the older family/relative's car. The fact that SOME young people are stupid with their money is no different from the fact that SOME old people are still stupid with their money. I deal with financially clueless people every day... but I'm also the guy with Ooma for the home phone, a Straight Talk cell phone, a Tracfone for the wife, Cable DSL, and Netflix. So I am supposedly the wise soul who ends up spending nearly $1000 a year on all these wonderful services. Maybe I'm the idiot? Maybe I should just use Obihai, and a Tracfone for emergencies? Who knows? Who cares? We all have our comforts folks.

  • CarPerson CarPerson on Feb 09, 2014

    You have to factor in not only how much the seller is discounting the price, but how much they are supporting the back end. 2011 BMW 335i (Inline 6 N55 engine, not the junk N54 from 2007-2010), absolutely pristine but the dealer put it through the full CPO refurb that included new run-flats, new fluids, battery, brake pads, discs, full-up the tool tray fill, $1k detailing, and more. Told them I would not even come to look at it unless $2500 came off the "Express price". They did and I did. Previous owner bought it, took it home, and wrapped it in bubble-wrap??? Every 6 months took it in for a free service and wiper blade refills as shown on the CarFax??? Damn the car is better than showroom fresh... BMW Finance: "How about 0.9% financing and we'll skip even that, making it 0.0%, and we'll pay you $35 to permit us to allow you to use our money for whatever term you want." Me-"Well, if that floats your boat...I'll take 36 months with auto bank payments please..." I just sat back and let these cards fall as they did. I had the car shipped in an enclosed trailer from United in Atlanta to Seattle for $1800. Six years of no maintenance costs, no finance costs, and a full-boat bumper-to-bumper warranty. You need to look at the full package before arriving at a "Yes". CarPerson