Though a small percentage of the overall market, new-vehicle loan originations of more than 84 months saw substantial growth in the second quarter. How long will auto lenders stretch?
Loan terms of 85 to 96 months made up 1.25 percent of all new-vehicle originations in the quarter, rising nearly a third from 0.95 percent a year earlier. Loan terms of 73 to 84 months grew slightly to 32.5 percent compared with 31.3 percent.
Fifteen or so years ago, some industry watchers thought 60-month loans were outrageous, said Melinda Zabritski, Experian's senior director of automotive financial solutions.
And a few years ago, extending loans to 84 months seemed excessive to many. In the second quarter, a third of new-vehicle loans were 73 to 84 months. But Zabritski said she doesn't expect the trend to repeat itself in the 85- to 96-month loan category. Some lenders won't go over 72- or 75-month terms.
In this market, lenders are probably conservative enough to resist making loans longer than seven years common. If they do, consumers could face even higher levels of negative equity, and automakers could risk even longer stints when consumers are out of the market.
The upside to extending terms is a lower monthly payment, and affordability seems to be the top concern for consumers. Still, it seems unlikely that terms as long as 85 to 96 months will become typical.