Drive that new car home -- with a 97-month loan

Rising auto prices have lenders offering ever-longer terms to help buyers keep their payments down. But that's not all good.

By Aimee Picchi Apr 9, 2013 12:44PM

Image: Car salesman showing couple new silver hatchback in car showroom © Juice Images/Cultura/Getty ImagesIt's always exciting to buy a new car, but there's a new twist in the auto industry that might temper some of that enthusiasm. 

Loan terms are growing longer than ever as car prices have jumped by about 9% over the past four years, according to The Wall Street Journal. At the same time, personal income has stagnated since 2008, when the U.S. tumbled into the Great Recession.

As a result, lenders are offering longer loans, with some extending to 97 months (that's eight years of monthly payments).

Some auto lenders are also resorting to subprime loans to extend credit to risky buyers, according to Reuters. Loans to subprime borrowers surged 18% in 2012, according to Equifax. Many of those subprime loans are showing up in personal bankruptcy filings. 

The average loan term for an auto purchase was 65 months during the last quarter of 2012, the longest ever, The Journal notes, citing data from Experian Information Solutions. About 17% of all new-car loans are between 73 to 84 months (six to seven years), a jump from about 11% of all loans four years ago. 

Driving the trend is a desire for consumers to keep their payments below $500 per month. Consumers are also getting some help from lower interest rates, with the result that the average monthly car payment has been cut by $5 and now hovers around $460, The Journal notes. 

But longer loans can mean more risk, and carmakers also worry that such deals will keep consumers from replacing their automobiles. 

Ford Motor (F) tells The Journal that its in-house financing arm averages new-car loans of 59 to 60 months to keep consumers coming back. "We don't want to keep buyers out of the showroom longer than that," Margaret Mellott, a spokeswoman for Ford, told the publication. 

As for the subprime loans, some carry interest rates higher than 20%, which helps offset the risk of taking on shakier borrowers. For buyers with good credit, interest rates are more likely to hover around 2% to 3%. 

What's to blame for the surge in subprime auto loans? The Federal Reserve, according to Reuters. 

The U.S. central bank has pumped trillions into the financial system and kept short-term interest rates extremely low, which has pushed some money into the more riskier aspects of finance. Critics say the Fed's strategy is creating more financial bubbles. 

"It's the same sort of thing we saw in 2007," William White, a former economist at the Bank for International Settlements, told Reuters. "People get driven to do riskier and riskier things."

But for consumers searching for a new car, the availability of credit on top of more flexible repayment terms are likely greeted by a revving new engine. 

More on moneyNOW


Apr 9, 2013 1:48PM
I have sometimes read things that say that auto prices are not higher than in the past, due to inflation.  I don't know the truth, but it seems to me that these long loan terms indicate that cars are more expensive relative to salaries now, as compared to some decades ago, when 36 mo was the norm and most people didn't have a problem paying that off... even, in most cases, with only one spouse working.  Of course, back then, insurance was cheaper, many families had only one car, and there was not the monthly cost for electronic services that we have now.  One landline and that was it. Now everybody is paying $200+ per month on cable, cell phones and internet access, and it doesn't buy you anything but monthly access... the payments never cease.  That's a big load on a family budget.
Apr 9, 2013 2:24PM

Bottom line is the automobile manufacturers & dealers are charging WAY too much for new autos. Don't be an idiot with your finances. Hold your ground and if these guys don't lower the prices to a more realistic price then as far as I am concerned they can go out of business.


FYI......I purchased a new Ford Lariat F350 CC Dually 4X4 in 2001 (MSRP $35k). They similar truck now has an MSRP of $65k. I know since I just went looking in December. I ended up keeping my old truck. While I have a great salary I am not going to spend 100% more than I spent 12 years ago. My salary has not gone up 100% over that same time frame.


Buy used as much as possible and put the savings away.

Apr 9, 2013 2:32PM
I have never taken a car loan longer than 36 months.  If it takes you longer than that, you can't afford it.  You have no business buying a Lexus when you can't even afford a Kia.
Apr 9, 2013 3:01PM
I've got 2 trucks and both are paid for, they might not get the best fuel mileage but no monthly payments will buy a lot of gas!
Apr 9, 2013 1:57PM
Next step.... 100 year loans on houses....
Apr 9, 2013 2:56PM
If you owe more on something right after you buy it than it's worth, you're living beyond your means.  Period.  This goes for cars, gadgets, furniture, houses, boats, etc....Our culture of "buy now, pay later" is eventually going to be our downfall.
Apr 9, 2013 1:15PM
Good lord, when will it stop.  I can't take it anymore.
Apr 9, 2013 2:17PM
Car prices up 9% in 4 years ? Seems like we are still bailing them out...............
Apr 9, 2013 2:53PM
Transportation that indebts you for 70+ months can only be rationalized as a necessity by someone able to pull the wool over their own eyes, debt is enslavement, in this case self enslavement via the twistedly stupid "I'm worth it" logic that was the main reason for the recent housing crash down to reality, trust me, you are not worth it!

Do you and your family a favor, quit fvcking yourself and them!
Apr 9, 2013 1:59PM
My 2004 Hyundai Sonata has only 68,000 miles on the odometer, so I MIGHT(a big MIGHT) trade it in in say16 more years from now when I am age 75(if the world still exists).
Apr 9, 2013 4:07PM
I hear car sales are up, well people are buying things that they really can't afford all the time and the bubble will eventually burst like the housing market, 45, 000 $ for a truck I would like, what in the world have you been smoking?
Apr 9, 2013 2:07PM

What does it matter?  Just use your EBT card.  Someone else pays for it so no big deal.

Apr 9, 2013 2:58PM
I'm in car sales and I'm going to tell you this.  YOU ARE A F@CKING IDIOT IF YOU TAKE OUT A LOAN LONGER THEN 72 MONTHS! Now I now some of you are going to say 72 is a long time also. Well the reason I say 72 the rate different is 0.5% on new cars  if they don't mark it up. I bought my wife's car on 72 for the lower payment but I always pay more. If anything ever happens 275 a months is easier then 330
Apr 9, 2013 2:51PM
Although many cars will last 10 years and some even longer I would never exceed 72 months and I like even shorter terms, say 48 and 54 months. I can see how some buyers can't afford these new 30,000 plus cars, but no way would I sign a 97 month contract.
Apr 9, 2013 3:11PM
I bought 4 new cars in my life, the first a 1952 Studebaker.  Cost: $1,800 new off the lot.  Since then I bought 4 used cars.  All cars paid with cash.  I regard credit buying a waste of money.  In 2006 if I used credit for a new car, it would have cost me over $3000 to finance.  Nuts to that.  I paid cash.
Apr 9, 2013 3:20PM
These long term auto loans are absolutely insane.
Did I read this article correctly..." the average monthly car payment has been cut by $5 and now hovers around $460" ? This insane monthly payment does not include full coverage insurance, etc.
What kind of fool would fall for such a scheme scheme?

Apr 9, 2013 2:08PM
There are people still stupid enough to borrow money?
Apr 9, 2013 4:22PM
Spoiled entitled Americans just can't get by on 'last year's model'. It's always got to be the newest, the biggest and the BEST of everything. No wonder we're in the shape we're in.

Apr 9, 2013 3:01PM

These loans are aimed at the poorest sectors of society.  if you cant afford to pay cash for it you can't afford it!

Apr 9, 2013 3:42PM
Your car should work for you rather than you working for your car.
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