Longer Finance Terms Becoming More Common
A growing number of people financing new vehicles are choosing to spread those payments over longer terms. Doing so helps lower the monthly payment to allow the buyer to divert that cash to other things or perhaps even get a more expensive vehicle for their original budgeted payment.
Many automakers such as Hyundai (who has been advertising a 96 month finance at 1.99%) are pushing for longer terms because the risk to them is low and they end up making more money off interest. The majority of car loan defaults happen with the first six months so from the lender’s point of view, it just makes sense.
J.D. Power and Associates says that 30 percent of all auto loans for 2013 have been for six years or even longer, an increase of 23% compared to 2008.
Longer loans are not necessarily a poor choice for the consumer either. With borrowing rates at rock bottom these days, the extra cost to spread the loan over an additional year or two could be worth it if cash flow is an issue.
