Many extended loan terms stretch as far as 84 months even while a string of large banks have pulled back to 72 months, but Indiana-based Forum Credit Union says it’s most competitive at 77 to 81 months, Ben Wire, the company’s indirect lending manager, told Auto Finance News.
Underwriters in his department come from a dealership background, so they know the dealers want some wiggle room to include add-ons without making the payment too risky.
“[77 to 81 month loan terms] gives a dealer some flexibility to sell back in products, give the member a payment they are comfortable with, and the dealer can still sell warranty or GAP and keep the payment reasonable,” Wire said. “It’s also just an easier sell than 84 months — it doesn’t sound as daunting.”
If the point of a longer loan term is to lower the monthly payment for the borrower, adding in products on top of the deal typically brings that monthly payment back to where it started, Charles Bradley, chief executive at Consumer Portfolio Services, told AFN. This has caused many lenders to “push the envelop” on loan terms too far he added.
By pulling back slightly on 84 months, Forum Credit Union thinks it provides the right amount of flexibility in an area it’s willing to stretch its bounds, Wire said.
Forum Credit Union also offers extended loan terms on select used vehicles with low milage, he added. The option isn’t used all that often by dealers, but it’s another tool at their disposal when the right car comes on the lot.
“The members that we serve, a lot of them are buying that more expensive luxury car and this gives them a chance to get in a car they might not normally consider and have a reasonable payment,” Wire said. “It’s been really successful, we haven’t had too many issues with the extended term, end of values on the car.”
The Indiana credit union serves 120,000 members, about 150 dealers, and originated $345 million in indirect loans in 2016.
