Consumers Are Choosing 72 to 84 Month Auto Loans At An Alarming Rate

Subprime Bubble-Burst, Part II, coming to an economy near you.

This is why regulation is needed in banking and loans. The bubble in car sales that has been going on for years now is ending and I order to keep sales up these ridiculous Lon term car loans are popping up due too "free market" forces. Government must step in and end this foolish consumer behavior and cap car loans to 4 or 5 years.

rockreid: You site "this foolish consumer behavior". That misses the roles played by:
- The car companies (who want to make more sales)
- The money lenders (who want to make more interest by lending more)
- The financial investment firms who take debt, repackage it, misrepresent it, and then sell it to investors (to make a buck unethically, via deception)
- The investors who jump on what looks like a good deal, and ends up not being one.

And yes, a consumer who does not live within his means, has a massive debt load, and is just barely renting their lifestyle, is also a huge factor. Especially when many of these people are barely able to eek out a living due to painfully low income.

A very similar scenario happened with subprime mortgages, which led to the collapse of a number of huge financial institutions throughout the world and in the US.

FYI, the amount of debt in the US exceeds the amount of money in the US (AKA the ability to pay off the debt). This should trigger alarm bells, signalling an unworkable system. It simply cannot succeed or be sustained by shuffling around debt (AKA repackaging it and reselling it, or borrowing money to give to a failed giga-corporation in massive bailouts while shifting the debt to taxpayers).

The same condition applies globally, to the world as a whole. In recent decades, the solution has been to either print up more money, or erase the debt. The lenders are EXTREMELY reluctant to erase their profits (and possibly their gambled capital), so the options are limited.

This has happened before. We're heading for it again, just as we did before. We just don't learn from our mistakes. These conditions are a byproduct of living in a plutocracy rather than a democracy.

But wouldn't that be "communism" for a true american? :)

@Hauerg, @TheSteve is a communist, but he prefers that you call him a Liberal Progressive.

Hauerg wrote “But wouldn't that be "communism" for a true american? :)”

Yes… but only if you believe Trumpansees are the only “True Americans” ;-)

This is why regulation is needed in banking and loans. The bubble in car sales that has been going on for years now is ending and I order to keep sales up these ridiculous Lon term car loans are popping up due too "free market" forces. Government must step in and end this foolish consumer behavior and cap car loans to 4 or 5 years.

No bubble in credit but YES bubble in new vehicle sales:

Credit availability and underwriting terms in auto finance have certainly loosened over the past 5 years, but to call it a credit bubble isn't fair. Lenders are still making money and borrowers are still making payments. Yes, default rates have inched up, but we were coming off of all-time lows in loan delinquency and it is to be expected that as credit standards relaxed after the financial crisis that eventually delinquency would rise again.

There IS a bubble in new car sales, though. Consumers can switch to buying used instead of new, and in fact they already have. Used car sales are up massively this year despite new car sales declining. So, the bursting bubble you speak of is not because people are defaulting on their loans, it is because people are not seeing the value of spending more money on a new car. And, they really only are interested in paying for an expensive new car if someone gives them an 84 month loan to buy it. The credit part is still reasonably healthy... it's the price of the cars that has gone up too far. Just think about all the cars these days fully loaded (Ford itself has admitted they are selling more Explorer Limiteds than base models-- something that was unheard of 10 years ago).

Ultimately, the longer loan terms will be the car company's own worst enemy. While the 84 month loan might have helped sell the car in the first place by delivering low monthly payments, it also means the buyer may not come back to the dealership for a new car for 6-7 years, as they will be under water on their loan for a longer period of time! When loans were just 60 months long, owners would have actual equity in their cars after 48 months or so, and could trade-in their car and use that equity for a down payment. That behavior won't be able to happen with all these long loan terms. AND, cars are better built today and last far longer than they used to, so maybe the consumer will be happy keeping their car longer. Who loses here? Not the consumer/borrower, but the car company. That is where the bubble is.

You can partially thank Mercedes for this phenomenon, thanks to their amazingly low 2.99% APR finance for 24-72 months, and how enticing this is to rich parents for their trust fund kids. You ever wonder why the average age of MB buyers is so old (compared to Audi buyers) but all these CLA drivers look like teenagers? Bingo.

If you have to finance for longer than 60 months then you need to drop down a level in the care your shopping for.

If you can pay off a car loan in 36 months you should buy less vehicle. There are even consumers who save up the "down" to lease a vehicle. This is why finance should be taught in high school.

Going beyond 60 months on a buy is insane. These super-long loans have great potential to backfire on dealers when the buyer gets pissed at the term when they try to trade in their car and find they are upside down. I'm really against them.

The average mid-size vehicle went up just as overall fuel prices peaked about 10 years ago. The constant additions for vehicle standard safety equipment also added to the base costs for each vehicle too. Increases in taxes (fed & state) are also to blame as well. Also, consider ever increasing employee salaries for autoworkers - and for other industries as well.

The average consumer wants to still buy a bigger car/truck/SUV where dealer profits are much higher in those upper-trim price ranges. And these longer loans extend well past warranty periods - which is another related issue in itself. Too many people will be drastically upside-down on their loan. That'll make their next vehicle purchase more painful unless they wait until they've got their current loan paid-off.

For a lot of people, a lease every 3 years make far more sense than financing for 84 months.