Steve Finlay

Steve Finlay

The Long and Short of Auto Loans Now vs. Then

Last week, I asked readers and car-industry Facebook folks what they thought of 84-month auto loans. Plenty of people weighed in. Here’s a sampling:

  • Jim Ziegler says they’re “insane.”
  • A dealership F&I person says they only reduce monthly down payments by $5, maybe $10, but the additional interest costs are “crazy.”
  • Someone else calls them “an unfortunate reality.” Another person brands them as “a travesty,” especially when leasing serves as an alternative to protracted paybacks.
  • Maureen McDonald, a FB friend (and offline friend, too), says, “Simply put, cars cost too much,” necessitating the need for long-term financing.
  • Friend and former colleague Cliff Banks says: "We were having this discussion in 2005 – only it was 60-month loans.”

Let’s go back even farther, to 1940, with WardsAuto Flashback as our time-traveling vehicle, A Ward’s Automotive Reports in June of that year almost gives the impression 84-day loans were the standard of the day. Here’s what Ward’s reported 75 years ago:

 “Longer term financing is making inroads in the automotive market, according to information from the auto finance industry. Contracts with a maturity date of 1-12 months accounted for 24% of auto financing in 1939 vs. 28% a year earlier.

“Those stretching 13-18 months fell to 35% from 47% in 1938, while contracts extending 19 months or more increased to 41% in 1939 from prior-year’s 25%.

“At the same time “substandard” contracts, those with less than a 33% down payment, rose to 29% in 1939 from 19% in 1938.”

People coughing up a 33% down payment sure aren’t seen as “substandard” today. They usually go by another name: super-prime borrowers.

Here’s where we are today, according to Experian Automotive:

  • The average loan term for new and used vehicles has increased by one month, reaching new all-time highs of 67 and 62 months, respectively.
  • Longer loans (terms lasting 73 to 84 months) accounted for a record-setting 29.5% of all new vehicles financed, an 18.6% rise over first-quarter 2014 and the highest percentage on record since Experian began publicly tracking this data in 2006.
  • Long-term used-vehicle loans also broke records, with terms of 73 to 84 months, reaching 16% in first quarter 2015, increasing from 12.94% the previous year – also the highest on record.

So, that’s the long and short of auto loans now vs. then.

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