More aggressive competition among lenders to woo car shoppers and an increase in new car prices have led some lenders to offer loans past the traditional terms – some as high at 97 months.
According to the Wall Street Journal, monthly payments can be kept under the $500 mark through longer terms, which is where some new car shoppers would like them to be.
Citing data from Experian Information Solutions Inc., the publication said the average new car loan was 65 months during the fourth quarter of 2012. Seventeen percent of new car loans were 73 and 84 months in the first quarter of this year, the Wall Street Journal reported, adding a few extended out to 97 months.
Among those lenders most likely to offer the long-term loans are credit unions and independent banks, Melinda Zabritski, director of automotive credit for Experian Automotive, told the publication.
While the loans have helped consumers get into newer cars than in the past, some car manufacturers have said the longer terms may cause drivers to put off replacing their vehicles, which could eat into sales down the road, according to the Wall Street Journal.
Critics of the longer term loans say a six- or seven-year loan may mean the car buyer will take longer to reach the point where they owe less on the car than it is worth, the publication said. Being upside down with a vehicle loan may also make it difficult to sell or trade if the payments cannot be made.
According to Experian, the average price of a new car has increased to $31,000, which is up $3,000 since 2009. Lower interest rates and longer term loans have also led to lower average monthly payments from $465 to $460 during the same time period, according to the Wall Street Journal.
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