Car Loans Becoming Longer, Riskier

The sub-prime mortgage crisis may currently be the sexier story about ill-advised loans, but car and truck loans have become of increasing concern to consumers as well. Shockingly, 45% of car loans are for 6-year terms or longer, according to the Los Angeles Times.

The Times recently reported on the growing length and risk of loans financed for automobiles by banks, credit unions, and the dealers themselves. The report raises several issues that all car buyers (regardless of whether they’re looking for new or used) should be aware of.

The average length of a car loan has increased to five years and four months as of October (although a story on MSN puts the average closer to 6 years even). Dwindling are the days of the three-year loan, as consumers look to finance more expensive automobiles that they would otherwise be unable to afford. Buyers are trading off large amounts of interest for a lower monthly payment. Some credit unions are even offering car loans for as long as eight and nine years.

What happens when one of these owners goes to buy a new car? Dealers often roll the debt from their last car into the loan for their next car. If this new loan must be financed over another five, six or seven years to make it affordable, you can see how this could be a problem.

With 45% of car loans written for longer than six years, this means car buyers are increasingly attempting to finance more and more debt over longer periods of time—time during which the product they’ve bought has plummeted in value.  Today’s average car owner owes $4,221 more than the vehicle is worth by the time he or she sells it, up more than $500 from 2002.

New cars that are fully loaded—with debt (Los Angeles Times)

Comments

The WSJ ran an article earlier this year stating that based on ownership percentage, Honda had the lowest amount of faults and Mitsu had the highest, followed closely by Chrysler. I was surprised as I thought it would have been Hyundai or Kia that would have had the highest amount of defaults given the price range offer. Thankfully I've never been upside down on a car loan.

really... people should stop and think about taking loans after loans these days specially since the economy's not that good :/ This might be the next problem after the subprime crisis, I hope not though..

Worst of all is that they trade-in their lease vehicle before the lease is up and leased a new one. Just like rolling a snowball.

That's why we've civilized, educated people, as well as complete morons in every nation - including the US of A :)

The abuse of credit in this country has become common place. Banks and credit card companies have been quick to jump on the bandwagon by offering programs that enable consumers to buy items they couldn't otherwise. Then when the debt goes unpaid many folks think the government should bail them out (bankruptcy) because of their own stupidity. Not sure where the fault lies but this practice has finally come back to bite us, the sub prime mortgage mess being a prime example. When we will learn there ain't no free lunches.

Now, the next question is :"Which politician running for national public office is going to suggest that the government bail out these people that made these risky and stupid car loans?" There are more similarities to the words "politicians" and "prostitutes" than simply the fact that both words begin with the letter "P".

Its all a case of buying way more car than you could otherwise afford.Financing has always made those who couldnt be an owner of upper crust vehicles OWNERS,thanks to the time payments.Mitsubishis problem came about during its successful ad campaign featuring "Bare Naked Ladies" and other unknown singing groups singing while flashing visions of Eclipses and Lancers danced across the screen,driven by very youthful parties to whom Mitsu was selling to.It worked...too well.Too many broke kids came in to buy that new now-hip Mitsu product and then fail to make any payments.I bought my 2000 Mitsu in 2002(cash outright),and guess what...it was a Repo! You will notice that Mitsubishi now targets it vehicles at a higher age group (no more laughing 18 year olds behind the wheels on TV).

I bought my house 2 years ago in a new subdivision. My wife had to change her car because an accident when her car was totaled by a car with no insurance, and we bought an used little Mazda, and I still drive my 9 year old Ford... most of the neighbors in our street have bought brand new cars, some even twice... keeping up with the Joneses.. I have seen the repo guys a couple of times in my street getting cars...

I keep hoping I'll get a better paying job, but my last two cars I bought used.

And you know what? I couldn't be happier!

The industry has been making such great product for the last 10-15 years, that a shrewd buyer can buy some GREAT cars out there for a fraction of what they stickered for.

If you know exactly what you want and what you're willing to pay you can find some REALLY good stuff out there.

And snapping up good cars with poor resale value is a great way to get a loaded midsize for less than the price of a used, stripper subcompact.

The article is incorrect in that Chrysler, Ford, and GM offer some of the best credit deals of no interest if you qualify. Not so good of credit deals coming from top tier imports. (Honda and Toyota) Generally these loans go out to 60 months so the length of loans is all on the auto companies. Those consumers who can't time their auto purchases or don't have the best credit our the ones to suffer. I guarrentee when I buy a new car, I will be looking for no interest loans. Unfortunately due to the rising cost of gas I probably have to go from my Intrepid to compact/sub compact car. I think gas will break four dollars in 2008 and probabily settle around 3.50 - 3.75 permentaly for 2008. I am in the Midwest so not talking about the crazy state of California gas.

DodgeFan,

I hope you understand why are they offering 0% in the first place.