Long-term loans are in high demand from consumers, largely because they result in lower monthly payments. Most come in the form of five- to six-year loans, but Experian Automotive has found that loans in the 73- to 84-month range accounted for 12.8% of auto loans in the third quarter, a rise of 10.3% from the same quarter last year.
That increase made the bracket the biggest gaining loan category last quarter when compared with 3Q11.
As the frequency of 84-month paper escalates, a few automakers are reluctant to go that distance. “It just takes too long for the customer to get in an equity position,” said Tom Doll, chief operating officer of Subaru of America Inc. “People are going to 60 months, 72 months, but we’re trying to stay away from 84 months.”
From the dealer and factory standpoint, customers with lengthy loan terms are out of the market too long. When trade-in time comes, they can potentially owe more than the vehicle’s worth, which makes financing the new car harder, a factor that may deter a customer’s brand loyalty.
In a rare move, Nissan Motor Acceptance Corp. began providing 75-month loans as a means to appease customers looking to finance beyond six years while avoiding 84-month loans.
“As a captive, we never want to see those longer-term cycles because they tend to degrade loyalty performance,” said NMAC President Mark Kaczynski. “But we wanted to prevent some of that business going out to 84 months.”
