More US Consumers Signing Long-Term Auto Loans
In the past, six-year auto loans were few and far between. Today, more of those loans are being issued, with seven- and eight-year loans gaining popularity.
NPR reports such loans are helping to fuel a boom in U.S. new-car sales, with one-third of the loans lasting 74 months and beyond. AutoPacific analyst Ed Kim says the cars are one of the reasons for the long loans:
Consumers are demanding a lot more technology in their vehicles, infotainment technologies. There’s also a lot more safety features that are in vehicles right now. Emissions and efficiency technology that are in vehicles right now, that are making vehicles cost a lot more.
Kim adds that the main driver is that most consumers are still crawling out of the Great Recession, which Experian Automotive’s Melinda Zabritski says isn’t much of a problem as far as lending goes. She says that while it would be sensible to take on 36- or 48-month loans on a new vehicle, “the average consumer just can’t afford that.”
Critics counter that the long-term loans could hurt consumers and automakers alike in the near- and long-term. Consumer advocate Mike Sante states that those who are taking out those loans have no business doing so in the first place, and should buy a less expensive new or used vehicle with a loan of no more than four years. Honda Executive Vice President John Mendel, whose company offers 36- and 48-month loans, says loans beyond five years are too long, and adds that he hopes his competitors come to their senses.
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RE: If interest rates are low enough, then why not go for the lowest possible payment by getting a longer-term loan? Still makes way more sense than leasing." Even if you have the money to pay cash, why do it? Keep your money in the market paying you 8% plus, and take a 0% - 3% car loan, and pocket the difference.
Certainly one rule doesn't apply to everyone. Would you bury your surplus in the back yard?
In Canada it revolves around a monthly payment of $500. per month which is a constant for the past several years. Transactions are closed on the basis of the monthly payment, and who can turn over deficiencies. Aspiring towards vehicle ownership is a thing of the past, having mobility for a monthly fee is the new direction. Especially with increased technology that makes vehicles obsolete (from a technology perspective) and disposable.
I took the 0% 6-year offer VW gave me when I bought my current car ('13 Golf TDI). They were heavily advertising 0% for 5 years, and when the F&I guy said they could actually do 6 years I couldn't see any reason not to. I will probably pay it off in another year or two at bonus time, otherwise given the miles I drive (15k or 16k a year) it would have just under 100k by the time it is paid off. That's a little frightening for a VW (I have had three GTIs prior, both good and bad experiences), so I added the mechanical breakdown coverage to my Geico policy (~$5/month covers you up to 100k with a $100 deductible per occurrence). As long as you are reasonably smart about it, I don't see a reason not to take the free money for as long as they'll give it to you.