More new-car buyers opt for 7-year loans

[Newsjock]

Source: USA Today

More new-car buyers are stretching out their loan payments as long as possible — as many as seven years — and experts wonder if the trend is another financial time bomb.

While many buyers remember the days when ads touted 48-month loans, today the biggest growth is coming in loans lasting up to 84 months. That's longer than most people are expected to want to keep their new car.

The longest-term new-car loans — 73 to 84 months — have jumped 25.1% in the past year and now make up 19.5% of total new-car lending, according to Experian Automotive. All other loan-length categories, in fact, have become less popular as buyers shift to longer terms to get lower payments.

... "You end up 'upside down' (owing more than the car is worth) for a longer time," says Greg McBride, senior financial analyst for Bankrate.com. "You are going to pay down the balance at a snail's pace while the vehicle depreciates rapidly."

Read more: http://www.usatoday.com/story/money/cars/2013/10/28/long-term-car-loans/3191819/

[tammywammy]

1. 7 years! I thought my 60 month loan was bad enough.

[Art_from_Ark]

2. I don't think I ever will buy a new car

given that there are so many low-mileage used cars available here that are in perfect running condition and can be bought with as little as one months' income.

[GreenStormCloud]

5. Last year I got a 2000 Nissan Sentra for $2,000.

It needed a bit of work, battery, alternator, starter, belts, but it has run well since then. Gets 30 mpg in summer, 33 mpg in winter. A/C in 105 degrees takes some power to run.

[GreenStormCloud]

3. In 2006 we were offered a ten year loan.

We refused and took a 5 year loan. Doubled up on some payments when we had extra money. Got it paid off in four years.

When I was young, the standard new car loan was three years. Even into 1990 three years was standard.

[Electric Monk]

4. I did that. I chose a 7 year term at ZERO percent interest. I plan to own the car at least a decade.

At zero percent interest, why not extend the time? The only thing better would be negative interest.

[LeftyMom]

6. Most people aren't taking loans that long at 0% interest.

In your case it's probably not a bad deal unless the longer payment schedule dramatically increases your insurance costs.

[customerserviceguy]

8. In your case

I don't blame you. I took a five year zero percent loan from Hyundai when I bought my Sonata Hybrid at the end of 2012. While I might have wanted to pay off the car sooner, just to be free of the debt, I'm not going to turn down interest-free money.

Here's who's upset about "underwater" car equity: Dealers who want to sell you a new rig every 4-5 years. Sure, they can often fold a little negative equity into that next car loan, but they can't do it with seven year amortization. Get a car that will last relatively trouble free for a decade, keep it that long and it doesn't make a bit of difference what your equity is on it after year three.

Smart move.

[Electric Monk]

10. re: "Fold a little negative equity into the next loan", I just don't think that way. At all.

In fact, it took me a couple of minutes and a couple of re-reads to understand what you were talking about. That's a debt spiral mentality, and it seems more common now than I used to believe, or wish. It makes me sad to even think about.

[customerserviceguy]

15. Do you sell cars on commission?

If you did, you'd be thinking along those lines. Say you've got a person trading in a car that you'd normally only give them $3K on trade-in, but they need to have $4K "down" to make the deal work above the cash in their pockets. You jack the price of the new car up by a grand (or simply don't "haggle" it down $1K from sticker price), so that extra thousand goes to the line "Amount Financed".

Of course, lenders will only go so far with this game, especially if the buyer's credit is not rock solid. Dealers make fewer deals the more negative equity they have to get lenders to accept. I spoke with realtors twenty years ago during a refinancing boom, same thing. The folks who refinanced to pay off their credit card debt (which left clean cards to rack up more debt) simply didn't leave enough equity in the place to cover the normal ten percent of collective closing costs on a seller of a home, so their homes could not possibly be competitively priced to sell quickly, and generate a commission for the real estate broker and salespersons.

Yes, it is sad, but that kind of 'thinking' has fueled a lot of booms that turned into bubbles, which then burst. Everybody loves it when the bubble's getting pumped up, and they figure they will deal with it when it pops.

[SheilaT]

7. Lunacy. Total lunacy.

How about buying a less expensive car in the first place? Or a used car?

Owing more than the car is worth is dumb. Dumb, dumb, dumb. The fact that cars lose value at the very beginning isn't exactly breaking news.

[watch the sky]

9. not such good news

What's next, thirty year loans on cars? I think the cost of a new car is so high now, this is one of the ways the auto makers counter that.

I like four year loans, but maybe that's just me.

[CANDO]

11. My new '99 Buick was purchased with 7 yr loan.

I still have it 14 years later with 170k miles and it purrs like a kitten! The key to longer term car loans? Don't buy junk. Get a quality vehicle and you should have the vehicle at least 10-15 years. 2 years ago I bought my new Ram 1500 with another 7 year loan. I'll have it till it drops from underneath me....a long time. I'm traditionally a new vehicle buyer....I don't want something another person had reason to get rid of, whatever that reason may have been.

[Delphinus]

19. What you said is key:

don't buy junk. My husband and I just replaced his twelve year old car with a car we hope will last at least that long. Mine is 17 and about ready to drop. I'll buy quality.

[get the red out]

37. Yes!

I plan on keeping my Honda Insight a very long time. I love this car and Hondas last.

[SoCalDem]

12. The last new car we bought ( a Chevy station wagon) had a THREE YEAR loan

which was standard at the time.. Modern new cars cost so damned much, they have to finance over 5-7 years just to get the payments down low enough so people can "afford" them.

New cars are for chumps.. A low-mileage used one is always the way to go

[Recursion]

18. My grandmother financed my first car (it was hers to begin with)

After that I've only done cash. With proper care, you'd be amazed how long your average $500 beater car will last.

[SoCalDem]

35. Our last three cars were bought with cash.. It's always the best thing to do, but

for many people, it's hard to come up with thousands in cash.. Financing a new car for 6-7 years just means you cannot afford the car you want and it might be time to "want" a less expensive one you can afford...whether it's from an individual or dealer

[CANDO]

20. Chumps?

I have purchased used vehicles on 3 occasions, and each and every one of them I wasn't satisfied with the longevity of the vehicle. Low mileage used vehicles are usually lease turn-ins. Most people who lease don't respect the vehicle and care for it like it's their own. It's basically a 3 year "loaner", and so they use and abuse for the most part. Many people say you over pay for a new car. I don't care! If I run into problems, it's between me and the dealer/manufacturer. I rest assured that the vehicle wasn't neglected from previous owners. And something else to consider, dealers make more money per sale on used sales than on new sales. So even paying less for a vehicle via it being used, you still walk away with more of your cash(unnecessarily, over and above the vehicle price) in the dealer's wallet.

[Myrina]

25. ^ This ^

I made the mistake of buying a used/lease from a dealership once & it was a bigger POS than the straight up used car I bought from the somewhat questionable dealer in the 'hood.

[politicat]

13. We only buy new, but we don't much care about being upside down.

We heavily insure. We drive care until they can't be economically fixed (if the fix costs more than a down payment and the tax write off for the donation). We maintain them religiously. We've only had one go at under 100K and it was close and utterly random -- a part that has no record of failing failed.

When we bought my soul, we took the 0 interest option at 3 years because that was the only zero interest available. When we bought our mini, we took the best interest rate offered -- .9% for 5 years. I'd rather a shorter term, but those were leases. We don't lease.

These two will take us up to almost retirement (we'll replace one just before partner retires and pay cash; same for me, five years later.). By then, I hope our electric will not be coal, that we'll have functional biodiesel, and a diesel-electric hybrid. Until then, we opt for reliable with good, if not stellar mileage and biking whenever possible.

[1000words]

14. Auto loans in general aren't wise, but anything over three years is a foolish financial decision.

[Recursion]

17. New cars in general aren't wise

I've never understood why anyone would buy something that loses half its value the second you buy it.

[CANDO]

28. Yeah like we're all Warren Buffet sitting on a mountain of cash!

I need a new car. Let me dig into my pocket change drawer!

[Recursion]

16. Good Lord. You'll end up paying more for financing than for the car.

Then again, for a long time GMC motors was actually a loss leader for GM Financial.

[bigdarryl]

21. I rather lease every three years

[ananda]

22. I generally try to pay cash but ..

.. in 2008 I took out a three year loan with a low interest rate
and invested the cash at a higher interest rate. That worked
out OK since I came out a little ahead moneywise.

The next car I want to get is one that is totally electric, maybe
a Smart car or something like that.

[Myrina]

23. I was pondering that ...

... the next car I buy will be my dream car & I intend to keep it literally forever. The car I have now is a 2006 & only has 50k miles on it (I don't drive much) - so buying new with a life expectancy of +100k miles & owing on it for 7 years doesn't bother me so much.

What does bother me, however, is that the longer the loan, the more you actually end up paying for the car & my days of overpaying for shit due to interest rates need to be over with.

So I keep waffling on going for a test drive because I know once I'm in it, I won't want to get out of it.

[CANDO]

29. There are some very low interest rates out there.

We had an auto draft from our credit union with a rate of around 3.75%. The dealer actually beat it with a bank rate of 3.49% on the 7 yr note.

[Myrina]

32. Yup, all dependent on credit score ...

... mine's just to the point where I'd qualify for a decent rate, so I don't know that I want to push myself 'to the edge of safety' by taking on more debt at the moment.

First time in my 47-year-long life I feel like a grown up, actually having some money left over after the bills are paid every payday.
I know that can change at a moment's notice given that I work in IT, so it's probably better for me to play it safe a little while longer.

[snooper2]

24. People buying more car than they need...but people will justify it

because "I" wouldn't make any stupid financial decisions LOL


I've got a good idea, maybe Mortgage companies should just start bundling car loans in with your house note. Then you can pay like $200 a month for 30 years! What a deal!

[Myrina]

34. Actually, if you consolidate your debt that's exactly what you're doing ...

.... folding a car loan or credit card debt or student loan debt into one massive 'mortage plus everything else' loan - you have one gynormous payment forever, but the little creditors go away.

[gopiscrap]

26. wow, that's long time to be paying on a car

[snooper2]

27. Also, if you buy in the NorthEast or snow states, wonder how much floorboard will be left

after that 7 year note?


especially if it's a fucking Ford

Here's somebody I follow on YouTube, look at this shit, a 2003 Ford F150- fucking Rusty junk - 2004 Dodge Ram, Rockers fucking gone

[CANDO]

30. Too many people don't care for their vehicles properly.

Don't drive in the salty slop and then put your vehicle in a warm garage. Matter of fact, don't put your vehicle in a warm garage even after driving in rain. And give your vehicle a good underneath wash after driving in salty slop. And don't Mfr's use galvanized metal in rust areas?

[snooper2]

31. Did you watch the video?

I've seen him work on cars where he can put his finger through the frame. I follow somebody in Canada and up there rusty cars don't pass yearly check, they are really strict.

[Vashta Nerada]

33. What shocks me about this article is that the people aren't expected to keep the same car

for seven years???

I've been driving the same car for 15 years now.

[Egalitarian Thug]

36. In case you're ever wondering how we got into such a deep hole,

just remember this bit of information.

It takes an exceptional brand of ignorant to take on years of debt in order to finance an ongoing liability.

[One_Life_To_Give]

38. Most don't rust out in 5 years anymore

The days of breaking out the Bondo for your 5-7 yr old car is mostly a memory now. 10yr old cars used to be an oddity on New England roads. Now I rotate between a new truck and a 17yr old Honda.

[oneshooter]

39. Both of our vehicles were paid for in cash.

2010 Elantra and a 2013 F-150. We keep them an average of 12 years.