Despite record-high loan terms across the industry, Heritage Acceptance Corp. keeps terms shorter than most lenders, especially for its subprime consumer base, Vice President of Sales and Marketing Mike Monaghan told Auto Finance News.
“It seems like society in general — everybody from our government down to people buying cars — just want to kick the can down the road,” he said of the trend of extending terms.
Often, borrowers with lower credit cannot afford a higher monthly payment and thus need to extend their loan terms. “There is no way to get around that,” he said. “However, when you extend that term you are increasing the chance that something might happen to stop your borrower from paying you back.”
For this reason, Heritage caps its terms at 56 months, which is significantly lower than the 72-month average on a subprime new vehicle or the 61-month average on a subprime used vehicle, according the Experian’s second-quarter automotive report.
“We don’t even go up to 60 months, because we have experience with that, and we know [that strategy doesn’t work],” Monaghan said. Yet, other lenders continue to push terms.
The average new-vehicle loan is 0.52 months longer than it was the year prior, while used-vehicle loans are 0.24 months longer on average during the same span, according to Experian.
Heritage specializes in subprime financing and employs about 400 sales representatives stationed in Indiana and the surrounding states.
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