Car Loans: The Borrow Time Gets Longer And Longer

When Lee Iacocca was a Ford regional manager, he helped pioneer auto loans. Consumers could buy a 1956 Ford for 20% down and $56 a month. The loans were paid off in just 36 months. In the final quarter of 2012, the average term of a new car note stretched out to 65 months, says Experian. 17% of all new car loans in the past quarter were between 73 and 84 months. A few were as long as 97 months. This trend bears huge risks for consumers and industry, says the Wall Street Journal. The average price of a new car is now $31,000, up $3,000 in the past four years. To keep payments under $500 as month, loan terms get longer and longer. Says the Journal: "Such long term loans can present consumers and lenders with heightened risk. With a six- or seven-year loan, it takes car-buyers longer to reach the point where they owe less on the car than it is worth. Having "negative equity" or being "upside down" in a car makes it harder to trade or sell the vehicle if the owner can't make payments. Car makers have mixed feelings about long-term loans. They allow consumers to buy more expensive—and profitable—cars. But long loans may keep some people from replacing their cars, cutting into future sales." from The Truth About Cars http://www.thetruthaboutcars.com

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