Auto dealers are doing “stupid things” to boost auto sales, including making seven-year-long car loans that harm buyers. Automakers are increasingly selling vehicles with 84-month loans that reduce monthly payments while making it tougher to repay faster than cars lose value. You’re ringing the bell on a new-car sale, but that customer is saddled .Extended-term loans are “stupid not just for the customer, but for the industry. Auto Deliveries are projected to rise to 16.7 million this year, which would be a sixth straight increase and extend the longest streak of gains since World War II. Sales will keep growing as the Federal Reserve’s zero-interest-rate policy encourages investors to collect yield from auto loans. While not in a bubble, the industry is taking on more risk by extending longer loans with smaller down payments to buyers with blemished credit scores. We’ve seen this movie before, we know how it ends, and it’s not pretty. But I say that it has longer to run, and we have already paid the price of admission. So we might as well stay to the end. You just keep your eyes on the exit door. More than one in four new-car loans in October and November were 73 to 84 months long, according to Experian .The share of new-car loans at those term lengths was less then 10 percent in 2009 and 2010. It can have some negative impact on the market in creating a vicious cycle of negative equity if the consumer doesn’t hold onto their vehicle long . Something has to be done to keep the market affordable, or consumer buying is going to have to change and we’ll have to return to less frequent purchases Rather than chase sales goals,((for the sake of their long term viability)) auto dealers should rely on 36- to 48-month long loans that more easily allow consumers to owe less on their car than what it’s worth when sold as a used vehicle.
Posted on: Tue, 20 Jan 2015 22:38:33 +0000
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