Ally Financial Offering 84-Month Loans Amid Industry Risk Concerns
Though most lenders aren’t comfortable with the idea of 84-month auto loans, Ally Financial is going full steam ahead with such loans.
Automotive News reports the former financial arm of General Motors — joining Toyota Financial Services in the seven-year lending game — is taking on 84-month loans because, per CEO Jeffrey Brown, the lender hadn’t taken enough risk over the past two to three years. Representative Gina Proia adds that the loan terms would be offered to well-qualified consumers in 24 states in 2015 as part of Ally’s commitment “to offering competitive products designed to help dealers provide their customers with a variety of options that meet a range of consumer credit needs and monthly payment preferences.”
However, Ally and Toyota Financial are among the only ones to offer such terms, as most lenders want their customers to come back more often. Financial observers, meanwhile, are watching longer-term loans with a cautious eye, citing concerns of risks to the United States economy down the road if things were to follow the same path as the housing bubble in 2007 and 2008.
Moody’s Analytics senior director Cristian deRitis is among those observers, though he isn’t worried about the risks attached, citing higher lending standards for 84-month loans, the small market size compared to the overall auto financing market, and the consumer base for most of the loans coming from credit unions, whose members don’t fall into delinquency often.
Speaking of the overall market, the average length for an auto loan is 66 months for new vehicles in Q4 2014, 62 months for used models. Both figures are up one month over the same period in 2013.
A friend of mine went to pay cash for a new truck, but in order to get the rebates offered he had to finance at least $5000. They force you to finance with their lending company.
I drove beaters for 20 years while my kids were in high school and college. I've been putting money aside for a new car the whole time and last year I bought (and paid cash for) a 2014 Elantra. Not the most sporty car out there......heck, it's probably a little boring, but it only cost me a touch over 19k including taxes and tags. I still have a good amount of money leftover in my car fund, in the next couple years- I plan on buying a few toys :-)
Anyone who is older than 32 and who doesn't understand that we're merely in the 3rd major asset bubble blowing (asset inflation; this time financial assets, mainly, such as equities AND bonds - best trick to do this simultaneously) period of central bank asset inflation AND consumer debt releveraging (car loans, student loans, re-fi's, etc.) of the last 17 year period hasn't paid attention to how these cycles begin and end. We're locked into a perpetual debt ramping up cycle in developed nations, rather than normal business cycles, now, where central bank monetary policy produces bigger booms (though wealth shifting and more transitory) and bigger busts than a more normal or natural aggregate demand & supply cycle (based on organic economic marginal productivity) ever did. This cycle of central bank monetary madness will end the same way the 1993-2000 and 2002-2008 ones did.
84 month terms are not ideal but sometimes necessary to help bury negative equity. If purchasing with no trade, I would never recommend going over a 60 month term since you want to be able to pay off that asset parallel to its amortization schedule in black book. Don't spin your wheels in mud and end up paying more in interest than principal!