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  • William Maley
    William Maley

    The Growing Trend Of Longer New Car Loans

      Long-term loans for new and used cars are increasing

    While car sales are down, the number of people opting for loan lengths from 73 to 84 months is going up.

     Karl Kruppa, senior automotive solutions consultant for Experian said at a conference last week that the share of 73 to 84 months car loans has been rising over the past eight years. Through February of this year, 33.8 percent of loans were for terms longer than 73 months.

    Other numbers to take into consideration,

    • In the fourth quarter of 2010, three-fourths of new-car loans were between 73 to 75 months. Only 17.1 percent of loans were 84 months.
    • Fast forward to the fourth quarter of 2016 and 28.7 percent of new car loans reached 84 months.

    Why the sudden increase? It might be due to buyers seeing the small payments on an expensive vehicle, without taking into consideration fully about the length of the loan.

    More worrying however is the growing popularity of long-term loans on used vehicles. Most of these loans are being used on late-model vehicles - about 30 percent of 2016 model year vehicles are being financed with 73 to 84-month terms. But long-term loans are being used on vehicles that are five years or older.

    "You know what's kind of startling? There's actually 10 percent of [2010 model-year] used vehicles being financed at a term between 73 and 84 months. Longer terms are here, and more and more lenders are willing to do that," said Kruppa.

    Source: Automotive News (Subscription Required)

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    I have to say with the cost of Auto's, buying a new one is understandable if like me you hold onto them for 10 years or longers. Offering them on used auto's older than 3yrs old is indentured servitude. 

    I can see future generations working to pay off their parents bills still. So Sad, So Stupid.

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    1 minute ago, dfelt said:

    I have to say with the cost of Auto's, buying a new one is understandable if like me you hold onto them for 10 years or longers. Offering them on used auto's older than 3yrs old is indentured servitude. 

    I can see future generations working to pay off their parents bills still. So Sad, So Stupid.

    I think sometimes it makes more financial sense to buy used or CPO after lease vehicle and keep it for 6-7 years or longer instead of buying new and keeping it for 10.  The loans are slightly cheaper on the new vehicles but the amount of value some vehicles loose in 2-3 years is pretty significant.

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    6 minutes ago, ykX said:

    I think sometimes it makes more financial sense to buy used or CPO after lease vehicle and keep it for 6-7 years or longer instead of buying new and keeping it for 10.  The loans are slightly cheaper on the new vehicles but the amount of value some vehicles loose in 2-3 years is pretty significant.

    I can totally agree with you in regards to most auto's. Come to full size truck or SUV, I want it new no other drivers with minimal mileage just like how my son bought it.

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    As for that tidbit about 10% of 2010 MY cars being financed longer than 72 months-

    I think this skewed a fair amount by people with excellent credit and large income buying expensive items such as high-end sports/super/luxury cars. I also wonder if possibly vehicles such as RV’s/etc are figured into this.

    These vehicles are driven very few miles a year, and in some cases, may be appreciating assets, and as such, shouldn’t be indicative of a default bad statistic.

    I can tell you, people with low credit scores and buying cars with bad LTV’s are not getting 72 months on a 2010 year vehicle, let alone 84.

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    43 minutes ago, dfelt said:

    I can totally agree with you in regards to most auto's. Come to full size truck or SUV, I want it new no other drivers with minimal mileage just like how my son bought it.

    You are right, I just compared used CTS which is loosing about half of its value in 2-3 years to an Escalade, Escalade is loosing maybe 15-20 percent.

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    1 hour ago, Drew Dowdell said:

    2010 MY vehicles being financed for 84 months?  That's gotta be social climbers chasing used money pits Benz S-classes just to have the badge. 

     

    It's not. Read my earlier post.

    It takes bullets credit to finance most 2010 cars for 84 months. We're not talking your run of the mill cars here. We're talking high-end stuff.  

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    Just now, Frisky Dingo said:

     

    It's not. Read my earlier post.

    It takes bullets credit to finance most 2010 cars for 84 months. We're not talking your run of the mill cars here. We're talking high-end stuff.  

    I was mostly being snarky.  I didn't finance for 84 months, but my credit union didn't even ask the year of the car when I bought out the lease.  They do 84 month "second chance" financing as well, so that's not for people with good credit. 

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    Just now, Drew Dowdell said:

    I was mostly being snarky.  I didn't finance for 84 months, but my credit union didn't even ask the year of the car when I bought out the lease.  They do 84 month "second chance" financing as well, so that's not for people with good credit. 

     

    But that's a credit union. Some credit unions will do crazy stuff that isn't a good measure of what your typical lenders- Wells Fargo, Chase, Cap One, US Bank, Harris, etc, etc will do.

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    My wife was talked into a 72-month car loan even though it was unnecessary. I objected outright, but their financial guy assured us that it was the same interest rate and gave us a 60 month figure if we wanted to pay it off sooner at no loss.

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    I find this whole 72-84 month car financing thing positively bizarre.  Not that many people keep brand new cars six to seven years.  I know the average transaction prices have gone through the roof in the last several years, but 72-84 months makes me want to ask people: ever consider a lease?  A 36 month lease can be good, and if you wish to buy you certainly can.  I know that leasing requires great credit, but cars depreciate over time.  They always have.  I forget where I read this but you should finance normally appreciating assets (such as a house, excluding 2003-08) and lease depreciating assets (such as cars, clothes and other more perishable items).  It's one thing if you buy a used car (especially a CPO off-lease model); it is quite another to finance a car (new or used) for seven years.  Of course, that leads me to the following question: how soon will your car be no longer underwater if the terms are for six or seven years?

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    I get that cars cost more and incomes aren't going up for a lot of people, and that people can keep a car for 10 years or more.  But if you have to go out to 75 or 84 months to get the payment where you want it, you are buying too much car.  Especially when a lot of people buy the car and finance in the sales tax and dealer fees.  Then they are underwater most of the loan.

    Interest rates are still low, so it isn't so much that some one is paying loads of interest on a 7 year loan (obviously its more than a 5 year) but someone would be much more financially healthy if they financed a car for 5 years and kept it for 10, rather than financing for 7 and keeping it for 10.  Having those extra years of no payment frees up a lot of income to pay down other debt or save for retirement.

     

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    There are so many good used cars out there that I really can't see going over sixty months on anything.

    9 hours ago, Drew Dowdell said:

    2010 MY vehicles being financed for 84 months?  That's gotta be social climbers chasing used money pits Benz S-classes just to have the badge. 

    I think they were talking about 2010 model year cars financed in 2010.

    50 minutes ago, smk4565 said:

    I get that cars cost more and incomes aren't going up for a lot of people, and that people can keep a car for 10 years or more.  But if you have to go out to 75 or 84 months to get the payment where you want it, you are buying too much car.  Especially when a lot of people buy the car and finance in the sales tax and dealer fees.  Then they are underwater most of the loan.

    Interest rates are still low, so it isn't so much that some one is paying loads of interest on a 7 year loan (obviously its more than a 5 year) but someone would be much more financially healthy if they financed a car for 5 years and kept it for 10, rather than financing for 7 and keeping it for 10.  Having those extra years of no payment frees up a lot of income to pay down other debt or save for retirement.

     

    Exactly, which is why I drive my cars until they are ready for scrap.

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    we bought our taurus x (one year old used) in late 08 right at the time of the banking crash so we were forced into (kind of) a 6 year loan just to get a better payment.  We actually did pay off the vehicle and own it a little longer but then it started to nickel and dime us.  So being familiar with the six year loan I think that's about as far as i would go on a new vehicle.

    I do think too for some people it can be justified on say a 3 year old lease return CPO.  Under the premise that you truly believe you would keep the 3 year old car 6 years or more.  And some do.  It's just that you'll always be fully underwater on that.

    We're leasing currently, primarily because i didn't want to finance so much interest and tax.  I figured i would get the buy down lower than my loan balance after three years, and i would have the option to see if the lease end value is less than the buyout.  The bad part of leasing is you have a deadline, and you can risk getting caught in a situation where your credit tanks or something right when you turn the car in.  Or the interest rates go up.  Or you are forced to another vehicle you didn't really want.  And there is the miles thing.  The Malibu lease is a pittance so i don't feel like we are losing much on that.  The van lease feels a little like throwing money out the window but its much less than the idea of owning something with a Chrysler tag on it and losing that much more.

    I don't have anything ill to say towards people who lease to manage their depreciation losses better.  But i sort of think there can sometimes be instances where status seekers lease and i guess then it depends on how good a deal they get on the lease.  And there are other examples, like people who have leased Volts with great deals and then have tuned them in and GM takes the hit for 10 grand or more.

    Our Chrysler van lease is due in 6 months or so and I've actually been shopping prices on new vehicles.  I don't think I'll have the ability to buy anything new except for a Grand Caravan which is heavily discounted or maybe Pacficas as they sit on lots and weather the market of first year teething pains.  I think leasing or buying will be out of reach for say a new Traverse...the thing is vehicle prices being what they are even a 5 year old Traverse or Explorer with say 80,000 miles will still be like 25 grand.  And to finance that for 6-7 years is crazy i think.  To pay cash up front for one like that is fine i think, if you have that cash for that example.

    I've thought a lot about just scouring the nationwide car sites and finding the diamonds in the rough....the 8-10 year old Taurus X or Flex that some old geezers had and maybe has like 60,000 miles on it and its still only like 14 grand.  And save up more dough.  And maybe try for a warranty.  To avoid the servitude.

    When i sold cars it broke my heart that we would finance 9 and 10 year old cars for like 5 year terms.  Crazy.  Upside down forever.

    One of my biggest regrets when selling was we had a used Tahoe on our lot that was like 8 years old and high miles but was clearly well taken care of and spotless.  It was 8 grand.  Should have bought it.  Neighbor actually bought a used Suburban similarly in the same timeframe and every time i see him pull in and out of the garage i know he made a great find because his ride looks new and its probably a 2004 or something, and he could probably list it on Craigslist some weekend and sell it immediately and make most back of what he paid.

     

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    Crazy prices are one of the reasons I've rethought the whole buying thing...

    I think at this point I am going to continue to run an older fleet of compact cars (best time might be now as no one wants small cars), then throw a compact SUV/CUV later..

    After being laid off, thinking adding a used GM car this year, then maybe an SUV next year if the economy doesn't tank bad....

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    I'm all over the map on what I want to do. Part of me wants to go with a new Tahoe lease, another part of me doesn't want that kind of payment since I'm having some misgivings about the economy in the next few years.

     I know I can find Rainiers, Bravadas, 9-7xs, and Envoys with <50k miles on them for $10k. I could theoretically pay cash for that and not have this 125k mile CR-V costing me $500 every other month. Put a new Android Auto head unit in and I'm set. I no longer put lots of miles on my cars, so I wouldn't see 100k in something like that for 5 to 6 years. Even if I did want to finance part of it, my credit union only charges 3% interest on used cars and doesn't ask questions about the year of the car.

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    I don't know how many of you guys have kids, but one of the main reason to get a newer car is safety.  It is been proven many times that cars older then 10 year old are not even close to the safety level of the more modern cars.  And I am not even talking about electronics, structural strength is on a complete different level.

    My wife drives our family car and to me personally it is important that she would have car no older then 10 years, preferably newer.

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    2 hours ago, Drew Dowdell said:

    I'm all over the map on what I want to do. Part of me wants to go with a new Tahoe lease, another part of me doesn't want that kind of payment since I'm having some misgivings about the economy in the next few years.

     I know I can find Rainiers, Bravadas, 9-7xs, and Envoys with <50k miles on them for $10k. I could theoretically pay cash for that and not have this 125k mile CR-V costing me $500 every other month. Put a new Android Auto head unit in and I'm set. I no longer put lots of miles on my cars, so I wouldn't see 100k in something like that for 5 to 6 years. Even if I did want to finance part of it, my credit union only charges 3% interest on used cars and doesn't ask questions about the year of the car.

    I have real misgivings about the economy also. Going through the same thought process myself.

    38 minutes ago, ykX said:

    I don't know how many of you guys have kids, but one of the main reason to get a newer car is safety.  It is been proven many times that cars older then 10 year old are not even close to the safety level of the more modern cars.  And I am not even talking about electronics, structural strength is on a complete different level.

    My wife drives our family car and to me personally it is important that she would have car no older then 10 years, preferably newer.

    There are a lot of advantages to a newer car for sure. Safety is a big concern-My 21 year old daughter drives a 2005 Mazda 3, I cannot wait for her to get something newer and safer.

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    just personal experience..

    got a 5Y loan on my mazda when i bought it...

    I refi'd almost a year later to 66m and 1.76% Less.  Over the past 2 years I had made 5 months ahead payments (was on track to pay it of in the original loan time)... this was good cause of my job loss, but planning to start one next week at more than 2x the pay i had been making. 

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    1 minute ago, loki said:

    just personal experience..

    got a 5Y loan on my mazda when i bought it...

    I refi'd almost a year later to 66m and 1.76% Less.  Over the past 2 years I had made 5 months ahead payments (was on track to pay it of in the original loan time)... this was good cause of my job loss, but planning to start one next week at more than 2x the pay i had been making. 

    Congrats on the new Job!

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    21 minutes ago, loki said:

    just personal experience..

    got a 5Y loan on my mazda when i bought it...

    I refi'd almost a year later to 66m and 1.76% Less.  Over the past 2 years I had made 5 months ahead payments (was on track to pay it of in the original loan time)... this was good cause of my job loss, but planning to start one next week at more than 2x the pay i had been making. 

    Awesome, congratulations on your new and better paying job! Always good to make more money.

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    3 hours ago, loki said:

    just personal experience..

    got a 5Y loan on my mazda when i bought it...

    I refi'd almost a year later to 66m and 1.76% Less.  Over the past 2 years I had made 5 months ahead payments (was on track to pay it of in the original loan time)... this was good cause of my job loss, but planning to start one next week at more than 2x the pay i had been making. 

    Congrats on the better paying job! Send some of that over here!

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    8 hours ago, ykX said:

    I don't know how many of you guys have kids, but one of the main reason to get a newer car is safety.  It is been proven many times that cars older then 10 year old are not even close to the safety level of the more modern cars.  And I am not even talking about electronics, structural strength is on a complete different level.

    My wife drives our family car and to me personally it is important that she would have car no older then 10 years, preferably newer.

    i witnessed the end of an extremely brutal accident the other day.  the victim was in a late 90's corolla.  I think he would have fared much better in a newer rig.  To be honest, apart from seeing blood streams run down his face, I am not sure if he was conscious and going to make it.

    With kids, yes, the safety factor increases.

    11 hours ago, Drew Dowdell said:

    I'm all over the map on what I want to do. Part of me wants to go with a new Tahoe lease, another part of me doesn't want that kind of payment since I'm having some misgivings about the economy in the next few years.

     I know I can find Rainiers, Bravadas, 9-7xs, and Envoys with <50k miles on them for $10k. I could theoretically pay cash for that and not have this 125k mile CR-V costing me $500 every other month. Put a new Android Auto head unit in and I'm set. I no longer put lots of miles on my cars, so I wouldn't see 100k in something like that for 5 to 6 years. Even if I did want to finance part of it, my credit union only charges 3% interest on used cars and doesn't ask questions about the year of the car.

    i like that with these national used car search engines, it means you can more easily find gems like those.  And with reliability history and internet forums, you can know more about what you are getting into with older vehicles.

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    Every week or so, Autotrader emails me when one of the 4 I listed above comes on the market with the specs I want.  There are plenty of deals out there, so I'm not in a rush to pull the trigger just yet. 

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