LAS VEGAS — Lenders are not “comfortable” with 84-month loan terms, if yesterday’s CEO Panel at the AFSA Vehicle Finance Conference is any indication.
“We take a conservative view on longer loans,” said Dawn Martin Harp, head of dealer services at Wells Fargo. 84-month loans comprise less than 1% of Wells Fargo’s books, she added. “Our view is that in the long term that may not be good for the consumer, and we are already seeing some uptick in negative equity: that’s a concern,” she said.
US Bank has followed suit, and is taking a “limited” approach to offering long-term loans as well, John Hyatt, executive vice president of dealer services, said during the panel. “It’s very dangerous for the dealer, because they come in so far upside down, and I think we’re doing a disservice to our customers,” he said. “There’s probably a limited use for it, but I am not very comfortable with the trend.”
The driving factor of lengthening loan terms is obvious: customers like lower monthly payments, according to David Paul, senior vice president at American Honda Financial Services. “We try to use leasing as a tool, and try to stay more on the conservative side ourselves in terms of length,” he said. “However, it’s prevalent in the market right now.”
Even though Westlake Financial Service has “gapped up” [lengthened] its loan terms, “by no means we’d reach 84 months,” said Ian Anderson, group president at Westlake. “Six percent of our cars are new vehicles, the rest are used, and generally our used vehicles are four or five years old,” he said. “But only a small part of our business is about 60-month loans.”
In fact, 73 to 84-month loans comprised 29% of new and 16.4% of all used car financing in the fourth quarter of 2015, according to Experian. The numbers increased 12% and 10.8% respectively, compared with the third quarter. The average loan terms stood at 67 months for new cars and 63 months for used in 4Q15.
