Long-term loans go bye-bye ... but that's a good thing
07-24-10 | 10:11 PM
#1
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Long-term loans go bye-bye ... but that's a good thing
http://www.autonews.com/article/2010...4/100729946/-1
Several studies over the last year have concluded loan terms of 72 months or more are finally out of fashion. Even credit union data indicate the ultra-long-loan trend is over — and the credit unions were particularly aggressive about promoting longer terms to compete with the auto manufacturers' 0 percent financing.
The latest data on this come from Kelley Blue Book, which says that by far the most popular loan term is 60 months. The 48-month and 36-month categories are about equally favored. The 72-month slot is a distant fourth, surpassing only the 24-month term.
Sure, extending the loan produces lower monthly payments — and the KBB study shows the promise of low monthly payments is still a significant lure for customers today. But 0 percent interest was the most popular draw, and that lowers payments, too.
The study concluded that as a result of the slumping economy and credit crisis, budget-conscious car buyers want to reduce their debt. They're making larger down payments and purchasing more affordable vehicles within their budgets.
So the bad news is dealers won't be making the finance profit they did a few years ago, and the good news is the trade cycle will be shorter. More customers will return to the showroom sooner and when they do, they'll have equity in their trade-ins.
Read more: http://www.autonews.com/article/2010...#ixzz0ufT8Fkrq
The latest data on this come from Kelley Blue Book, which says that by far the most popular loan term is 60 months. The 48-month and 36-month categories are about equally favored. The 72-month slot is a distant fourth, surpassing only the 24-month term.
Sure, extending the loan produces lower monthly payments — and the KBB study shows the promise of low monthly payments is still a significant lure for customers today. But 0 percent interest was the most popular draw, and that lowers payments, too.
The study concluded that as a result of the slumping economy and credit crisis, budget-conscious car buyers want to reduce their debt. They're making larger down payments and purchasing more affordable vehicles within their budgets.
So the bad news is dealers won't be making the finance profit they did a few years ago, and the good news is the trade cycle will be shorter. More customers will return to the showroom sooner and when they do, they'll have equity in their trade-ins.
Read more: http://www.autonews.com/article/2010...#ixzz0ufT8Fkrq
07-24-10 | 11:07 PM
#2
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From: RI
I agree this is a good trend. I'm sure with the news filled with so many people upside down in the housing market that everyone is reassessing their finances more carefully now.
What I'm not so sure about is if the shorter loan cycle will bring people back to the showrooms more quickly. I know for myself one of the reasons why I buy my cars vs leasing is that having a car without a payment, even if its for a short period of time, is a beautiful thing
What I'm not so sure about is if the shorter loan cycle will bring people back to the showrooms more quickly. I know for myself one of the reasons why I buy my cars vs leasing is that having a car without a payment, even if its for a short period of time, is a beautiful thing
07-25-10 | 02:03 PM
#5
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From: CA
^much agreed! five years and under should be the max. six and seven year loans would be better for monthly payments, but would accumulate more interest (benefit of the auto manufacturer's finance dept). ive always felt that if you buy a car, try to pay it off as fast as possible. factoring depreciation, the value of the car drops significantly, yet i still would have to pay the full amount of the vehicle's loan. getting that pink slip and not having a car payment is a beautiful thing, too!
07-25-10 | 03:01 PM
#6
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07-25-10 | 03:09 PM
#7
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Wow, thanks for contributing. You logged in CL to post about a typo and defend Nissan's honor again. Must hurt to see all those lease deals and 108 month financing terms help drive your favorite brands sales.
How about stick to the topic.
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07-25-10 | 05:57 PM
#8
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Joined: Oct 2003
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From: Virginia/D.C. suburbs
Sure, extending the loan produces lower monthly payments — and the KBB study shows the promise of low monthly payments is still a significant lure for customers today.
I know that I've shopped with a number of people who didn't have much to spend, and, even with El Cheapo entry-level cars like the Hyundai Accent and Kia Rio, that's the only way they could take one home....go with low money down and long, 5-6 year loans.
0 percent is fine when it is offered, but too many automakers don't offer it....see my next reply just below.
But 0 percent interest was the most popular draw, and that lowers payments, too.
The study concluded that as a result of the slumping economy and credit crisis, budget-conscious car buyers want to reduce their debt. They're making larger down payments and purchasing more affordable vehicles within their budgets.
So the bad news is dealers won't be making the finance profit they did a few years ago,
Last edited by mmarshall; 07-25-10 at 06:01 PM.
07-26-10 | 06:00 PM
#10
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From: Virginia/D.C. suburbs
Of course, some people lease to get around that.....leasing can (sometimes) get you into a more expensive vehicle for the same monthly payments.
07-26-10 | 09:28 PM
#11
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Joined: Sep 2008
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From: TX
Sucks I owe more than what my car's worth now.
But oh well, I'd still keep her until she stops running lol.
Yeah, I think they should not go longer than 5 years. Anything past that will be tough to pay off. I know I won't ever make that mistake again. 
But oh well, I'd still keep her until she stops running lol. Yeah, I think they should not go longer than 5 years. Anything past that will be tough to pay off. I know I won't ever make that mistake again.
07-26-10 | 09:48 PM
#12
The market will dictate loan terms. If shorter loan terms reduce sales, they will adjust them accordingly.
I'm much more worried about car dealers that advertise "Bad credit, no credit, no problem" or "Sign and drive". Now those are risky, and we all know who pays for these loans in the end.
I'm much more worried about car dealers that advertise "Bad credit, no credit, no problem" or "Sign and drive". Now those are risky, and we all know who pays for these loans in the end.
07-26-10 | 10:17 PM
#13
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From: tech capital
The bad credit/no credit/no problem types pay super high interest rates that are unheard of for A paper borrowers with 750+ credit scores.
07-27-10 | 09:35 AM
#14
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From: Virginia/D.C. suburbs
Och has a good point, though. Those "Sign and Drive" loans ARE risky. And they are riskier for those with poor credit than they are for those with better credit ratings. High interest rates on a loan, of course, are a lot more likely to be defaulted by someone with a low income level or an unstable job than for those in better financial straits. Of course, people who are better-off financially are less-likely to finace in the first place. When buying (not leasing), I myself am a firm believer in paying cash for a car whenever possible....though there are some circumstances whan financing, even for those who have money, is not a bad idea, if you can invest the money would would have paid cash for and get a higher return (after taxes) than the car-loan itself costs. That way, you can actually make some money on the deal.....if your job/income stays stable.
07-27-10 | 11:20 AM
#15
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From: tech capital
Och has a good point, though. Those "Sign and Drive" loans ARE risky. And they are riskier for those with poor credit than they are for those with better credit ratings. High interest rates on a loan, of course, are a lot more likely to be defaulted by someone with a low income level or an unstable job than for those in better financial straits.
), that's why the interest rates for those with low credit scores are extremely high, rates that are double-digit
.Built into those extremely high rates paid by subprime borrowers are the costs associated with the high rate of default for that kind of borrower.