During the last quarter of 2012 the average term on a loan offered for a new vehicle in the US reached a record 65 months.
According to Experian Automotive, the average term for a loan in 2011 was 63 months. The loans with the biggest increase were those of 73 to 84 months, followed by loans of 61 to 72 months. The Power Information Network says that in March auto loans of minimum 72 months accounted for 30.4% of the total retail new-vehicle volume, flat compared with March 2012 and slightly down for the record 30.6% in September 2012.
“Seventy-two-month loans allow customers to achieve lower payments that fit their household budgets,” said Deirdre Borrego, vice president in charge of the Power Information Network.
Although analysts believe that such long-tern loans cut both ways for lenders and auto retailers, the lower payments also encourage more customers to buy new vehicles and offset a general drop in manufacturer incentives. Of course there is always the scenario when the customer defaults, which means that the loss increases, depending on the value of the vehicle and how much the customer owes.
“It comes down to the fact that interest rates are very low,” said J.D. Power’s Borrego. “And that’s attractive to consumers.”