Car Loans Get Longer, Rental Vehicles Get Older

Matt Posky
by Matt Posky

While nobody needs to tell you that the economy isn’t in good health, we should at least hip you to the latest automotive trends relating to the financial purgatory we’re currently living through. Ford sent a memo to dealers last week indicating that it would be removing the minimum FICO requirement for 84-month financing, indicating that the industry may soon normalize auto loans that are even longer than the 72-month whoppers that have grown in popularity over the last several years.

Meanwhile, those needing a vehicle intermittently will find that rental rates have not been declining as hoped. Despite analysts previously suggesting that auto pricing may stabilize through the fall, we now look to be going into the holidays facing familiar high-priced troubles — and there’s really no reason to think that’s going to change after 2022 gets here.

Two decades ago, the average automotive loan was 58 months. By 2021, that figure moved to 64 months with an growing number of subprime customers thinking that they would be able to manage smaller payments over a longer timeline. This can primarily be attributed to average vehicle price going up as consumers gradually lost buying power due to stagnating wages, inflation, or whatever else you want to blame the now-obvious money problem on.

One way to to mitigate rising monthly payments is to spread them out over a longer timeline. This is resulted in an increased number of vehicle repossessions and allowed the financial sector to technically ask for more money by raising the annual percentage rate (APR) of charge as terms lengthened. But most automakers tried to remain competitive by offering juicy incentives ahead of the pandemic and going absolutely bananas with the giveaways that corresponded with the initial period where everyone was buying toilet paper and canned goods instead of cars.

Those days are gone with demand and pricing up on new and used vehicles.

Ford was briefly offering zero-percent APR for 84 months as a way to incentivize purchases at the start of 2020. However production had been ground down by the start of 2021 as working restrictions and geopolitical strife demolished supply chains. Suddenly, everyone realized that the situation might not improve anytime soon and that there were less vehicles available than years past. The end result was a consumer base that’s now willing to pay more for products and a business sector aware that it could make more money by not offering incentives and low APRs.

Ford killed its zero-percent deal just a few months after introducing it. But it retained the 84-month loans to appeal to customers who may not be able to afford a new ( or even used) vehicle. CarsDirect has since learned that the automaker has since begun notifying dealers that it would be ditching the minimum standards for 7-year automotive loans:

While a buyer’s credit score plays an important role in getting financed, it’s just one basic car loan requirement. In this case, Ford’s captive financing company has opted to adjust its requirements. That could make being able to afford a new car seem less like a black-or-white matter tied to one’s credit score.

84-month loans often have higher rates that can translate to significant interest costs. While the upside is usually a lower monthly payment, the total cost is another matter. For example, we estimate that Ford’s current rate of 6.9 [percent] on the 2022 Bronco Sport would make a $40,000 SUV cost over $50,000 before taxes [and] fees.

“Our proprietary scoring models do an excellent job of assessing the probability that an applicant will be able to pay. FICO is one input. Eliminating the separate FICO requirement opens the prospect of financing to more customers who would qualify for 84-month financing within our models regardless of their FICO score,” explained Ford Credit spokesperson Margaret Mellott.

Considering that selling less has actually left most automakers with a tidy profit this year, we wouldn’t be surprised to see the trend continue spreading throughout the industry. But is it what’s best for consumers and the broader economy? While credit scores have always seemed somewhat arbitrary and unnecessary, opening up the gates to anyone Ford thinks it can lock into an extended loan feels like it could result in predatory behavior.

The world of rental vehicles doesn’t have the ability to mask increased fees behind annual percentages and longer terms, however. Following the trajectory of vehicle sales, rental prices fell ridiculously low through the first half of 2020. This wreaked havoc throughout numerous agencies, resulting in more than a few bankruptcy scares, shrinking fleets, and periods of mass layoffs. By the start of 2021, the whole industry was in complete chaos and realized it could basically charge whatever it wanted in regions with elevated demand.

The popular rental site Kayak recently reported that searches for rental vehicles for the upcoming holiday season are up 230 percent compared to 2019, which was the last normal year on record. While this could be the same number of people hunting for bargains, vehicle inventories remain lean overall. Most companies have been keeping cars around for much longer than previous years and your author can attest to the last few loaners (used to support my aged gas guzzler) being particularly shitty and expensive. I’ve also arrived at numerous rental locations that were brutally understaffed.

Letting vehicles approach 100,000 miles before they’re dumped is becoming increasingly normal. Rental firms previously wouldn’t have dared offer you a car with more than 50,000 miles on the odometer and more than a few agencies had a hard cutoff of just 25,000 miles. But those old rules are being tossed out the window as businesses cannot buy up enough inventory to keep up with demand.

On the upside, adding vehicles still means rates have stabilized from the insanity we witnessed going into the summer of 2021. For a while, it was nearly impossible to find a car in some cities and those that were available could run over $400 per day. But some regions have since gone back to day rates that are only fifteen bucks higher than they were before the pandemic.

Sadly, the reprieve may not last.

Earlier in the month, the Washington Post spoke with numerous rental agency executives and market analysts to see if the mayhem has truly subsidized. While most agreed that things were better than they were eight months ago, depleted fleets remained common as businesses found demand shifting regions. That’s left the average rental fee at $99 per day — lower than it was just a few months ago but higher than any period over the last two years. Worse yet is the general assumption that things will only worsen going into the winter with everyone uncertain as to how 2022 might shape up.

“We’re expecting these prices to increase going into the holiday season,” Lindsay Schwimer, spokeswoman for the Candian-based Hopper travel site, explained.

From WaPo:

“In terms of predicting the future, I can’t,” [Greg Scott from the American Car Rental Association] said. “I think that what I’m hearing about new cars is that we’re probably talking 2022 before we get a grip on the supply chain. I don’t think anybody is predicting a return to quote-unquote normal in 2021.”

[Deutsche Bank leisure analyst Chris Woronka] said he wouldn’t even expect rental-car inventory to be fully available by next summer, saying it could be until 2023 when the situation is normalized.

Enterprise Holdings spokeswoman Lisa Martini said in a statement that the company, which includes the Enterprise, National and Alamo brands, is seeing increased demand all over the country.

“We anticipate strong demand throughout the next several months, including the holiday season,” she said in the statement. “Our teams continue to work hard to meet the increasing leisure travel demand and support customers’ broader transportation needs.”

These predictions have been mirrored by the minds working for Kelly Blue Book and just about every other market analyst with functional gray matter. It looks like it’s going to be a rough winter if you’re interested in buying or renting a vehicle and neither industry is interested in lowering fees while it knows consumers are desperate. We’re going to have to wait this one out or simply boycott driving (shudder) until it becomes clear that consumers won’t pay increasingly ridiculous prices or inflationary spending subsides in general.

[Image: Gunter Nezhoda/Shutterstock]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • SaulTigh SaulTigh on Oct 13, 2021

    I don't necessarily disagree with an 84 month loan in certain circumstances. If you were say buying a new vehicle with a similarly long warranty and planning to keep it beyond the payoff period, it's nice to have a low payment that you can pay extra on when times are good, but drop back to the minimum when things are tight. My last new auto loan was 1.94% for 75 months, but I paid it off in 50 because I had simply become tired of writing out the check each month. I'm done making payments on a car, and my next purchase will be cash. Currently waiting on the market to turn around both in terms on inventory and incentives. In the meantime, continue to put away money every month as if I did have a car payment, towards my next purchase.

    • See 1 previous
    • 3SpeedAutomatic 3SpeedAutomatic on Oct 15, 2021

      My last loan was 60 months, but paid off in 52 months. Like you, got tired of writing a check each month. Once the market gets back to normal, may write a check for a low milage SUV with extended warranty. As for rentals, my last two cars had 8k miles and 24k miles on the odometer. In the past, have had a high of 58k miles (Hertz in Dallas) and as low as 800 miles (Budget in Florida). As long as the A/C and radio work, I'm happy!!

  • Stuki Stuki on Oct 14, 2021

    "Car Loans Get Longer, Rental Vehicles Get Older" That's what America getting poorer looks like.

  • Leonard Ostrander Plants don't unionize. People do, and yes, of course the workers should organize.
  • Jalop1991 Here's something EVangelists don't want to talk about, and why range is important: battery warranties, by industry standard, specify that nothing's wrong with the battery, and they won't replace it, as long as it is able to carry 70% or more of its specified capacity.So you need a lot of day 1 capacity so that down the road, when you're at 70% capacity with a "fully functioning, no problem" car, you're not stuck in used Nissan Leaf territory."Nothing to see here, move along."There's also the question of whether any factory battery warranty survives past the original new car owner. So it's prudent of any second owner to ask that question specifically, and absent any direct written warranty, assume that the second and subsequent owners own any battery problems that may arise.And given that the batteries are a HUGE expense, much more so than an ICE, such exposure is equally huge."Nothing to see here, move along."
  • Roger hopkins The car is in Poland??? It does look good tho...
  • Kwik_Shift_Pro4X The push for EV's is part of the increase in our premiums. Any damage near the battery pack and the car is a total loss.
  • Geozinger Up until recently this was on my short list of cars to replace my old car. However, it didn't pass the "knee test" with my wife as her bad knee makes it difficult for her to get in and out of a sedan. I saw a number of videos about the car and it seems like the real deal as a sporting sedan. In addition I like the low price, too, but it was bad luck/timing that we didn't get to pull the trigger on this one.