Are 96-month loans the new 72-month loans? With auto prices on the upswing, and consumers seeking affordable monthly payments, it seems many lenders are stretching terms to eight years. In fact, recent data from J.D. Power and Associates found that nearly one-third of auto loans were 72-months or longer, a record high.
Kelley Blue Book reported that the average new-car price is $31,200, and with 11 years the average age of cars on the road right now, consumers are ready to trade in — and up — as they’re seeking out better cars while still landing smaller monthly payments, KBB Executive Editorial Director Jack Nerad said in a published report.
The longer-term loan trend may be boosting auto sales, as new-car movement last month was the highest since August 2007, said KBB.com. One finance expert, however, finds the trend “disturbing.” “Ultimately, it is just another way of getting people to take on more debt,” Richard Barrington of MoneyRates.com, said in the report. “It is also disturbing that people should feel the need to lengthen out car loans at a time when low interest rates have already made loan payments unusually affordable.”
While there have historically been concerns about the risk of purchase cycle extension, “it is not necessarily as daunting as it may seem,” John Humphrey, senior vice president of the global automotive practice at JDPA, said in a press release. “The longer loans are being offset by more leasing and the low interest environment, which means that consumers are able to put more of their monthly payment towards their loan principal rather than interest fees,” he added.
