topic Re: Is A 72-month Auto Loan The New Normal? in Auto Loans

Is A 72-month Auto Loan The New Normal?

adelphi_sky — Thu, 20 Aug 2020 12:31:51 GMT

Lurking around in the auto loan section I have noticed a lot of approvals for 72-month loans. As a middle-aged man, I was taught that anything longer than 4 years was bad. As I got older, I felt pretty bad getting a 60-month loan. Ten years later, I see a lot of 72-month loans from people with good credit and high salaries. No one is buying Porches and Maseratis. But they have 72-month loans on average cars.

Is it because cars are just that more expensive and salaries never really caught up so people have to stretch out their payments? Or is it a function of the banks offering historically low rates for 72 months so people take advantage?

Thoughts?

Re: Is A 72-month Auto Loan The New Normal?

Flexfanatic — Thu, 20 Aug 2020 13:32:57 GMT

@adelphi_sky wrote:
Lurking around in the auto loan section I have noticed a lot of approvals for 72-month loans. As a middle-aged man, I was taught that anything longer than 4 years was bad. As I got older, I felt pretty bad getting a 60-month loan. Ten years later, I see a lot of 72-month loans from people with good credit and high salaries. No one is buying Porches and Maseratis. But they have 72-month loans on average cars.

Is it because cars are just that more expensive and salaries never really caught up so people have to stretch out their payments? Or is it a function of the banks offering historically low rates for 72 months so people take advantage?

Thoughts?

I have seen reports where even 84 month loans are becoming more common due to the cost of a new truck or SUV. I have a numerous loans ranging from 36 to 72 months and some people may disagree with the longer term I say its not bad if you understand what you're purchasing and what your long term plans for the vechicle (at least whats in your control).

In my opinion people should take advantage of 0% financing and structure the payments they are comfortable with but also put extra against your principal if you don't plan on keeping that vechicle for the entire loan term.

Another thing to consider when financing is the vechicle you're purchasing. Some will depreciate a lot quicker so if you take a longer term and go to trade it in you'll find yourself having to rollover the difference into a new car purchase.

Re: Is A 72-month Auto Loan The New Normal?

CreditCuriosity — Thu, 20 Aug 2020 14:29:09 GMT

I would never personally do a 72 month or even 84 month loans as they offer both.. You are going to be so under water and car most likely will be underwater and one is forced to keep car unless they can buy it out at the end and pay alot more interest during the course of the loan just for lower payments on a car most likely they cannot afford if they need those terms. I would not even take a 72 month loan at 0% as after 2-3 years you are going to be underwater and most likely going to lose 10-20k if you want to trade it in...

Re: Is A 72-month Auto Loan The New Normal?

gorgon — Thu, 20 Aug 2020 15:30:16 GMT

It does really come down to price. I was looking around the lot while I was waiting on the dealer to finish my deal and couldn't believe the prices of some of the full-size pickup trucks.

Re: Is A 72-month Auto Loan The New Normal?

blindambition — Thu, 20 Aug 2020 15:55:44 GMT

Car loans of 72 and 84 months have become more common. Price is a driving factor. Along with the fact that consumers are holding onto their cars longer.

Re: Is A 72-month Auto Loan The New Normal?

sccredit — Thu, 20 Aug 2020 15:59:58 GMT

The average new car loan is 70.6 months. I think it is most reflective of vehicle price. We have DW's car leased but my car is a CPO Subaru that was bough ton a 36 month loan. Her next one will also be a CPO car on a 36 months loan. We won't buy brand new again.

Re: Is A 72-month Auto Loan The New Normal?

nycsimone — Thu, 20 Aug 2020 16:47:39 GMT

@CreditCuriosity wrote:
I would never personally do a 72 month or even 84 month loans as they offer both.. You are going to be so under water and car most likely will be underwater and one is forced to keep car unless they can buy it out at the end and pay alot more interest during the course of the loan just for lower payments on a car most likely they cannot afford if they need those terms. I would not even take a 72 month loan at 0% as after 2-3 years you are going to be underwater and most likely going to lose 10-20k if you want to trade it in...

Unless you're carrying in a bunch of negative equity you should NOT be underwater on a vehicle after 3 years. Most residual values on leases are 50-55% after 36 months. Some go as high as 60%. These residuals are based off of forecast ACV after the lease ends.

I just bought my car (GMC Terrain) 4 weeks ago. I put $0 down and I can resell my vehicle to one of those online websites for about $3,000 more then what I paid for it right now. I paid just over $20,000 for a vehicle with a sticker price above $30,000. Yes, I was able to get over 30% off the vehicle with negotiations and incentives.

If after 3 years you're underwater on your vehicle (anything over $1,000 let's say) and you didn't carry a bunch of negative equity into your new loan then you're doing something wrong. Either you didn't take the time to research purchase prices on your vehicle, you got ripped off on your financing, or the dealership is lowballing you on a trade-in value. All of these things can be fixed with a little bit of homework.

Re: Is A 72-month Auto Loan The New Normal?

ldkcivilservant — Thu, 20 Aug 2020 17:42:39 GMT

I agree that it's a function of price. The new RAM 1500 can be specced to over $100k!!! For a half ton!!!

Re: Is A 72-month Auto Loan The New Normal?

adelphi_sky — Thu, 20 Aug 2020 18:09:57 GMT

@ldkcivilservant wrote:
I agree that it's a function of price. The new RAM 1500 can be specced to over $100k!!! For a half ton!!!

That's understadable. But I see people getting 72-month loans on cars less than $50k.

Re: Is A 72-month Auto Loan The New Normal?

sccredit — Thu, 20 Aug 2020 19:04:03 GMT

It's all relative.

5 years ago a brand new Nissan Versa could be had for $9,999 plus TTL. That same car is now $15k+ with zero options + TTL, a 50% increase.

Someone starting out in an office job making $40k a year could be a buyer for that model. That same entry level position has not seen 50% of wage appreciation in the last 5 years so in order to afford that same model 5 years apart it takes longer financing to make it happen.

A $50k car may be cheap to someone making $250k a year, whereas it is unattainable to someone making $50k a year. Just price point alone does not indicate anything and is not an accurate barometer.

Re: Is A 72-month Auto Loan The New Normal?

Anonymous — Thu, 20 Aug 2020 19:31:45 GMT

I think it is partly due to higher price of vehicles today, and secondly to make it affordable for just about everyone's income level.

$25K makes the payment around $400 depending on the APR, which is a lot more doable for the regular folks. Where as others would rather pay higher payment for shorter term.

Even when cars were much cheaper and the APR was mich higher, they were still seen affordable for the average person. Today we're also stuck behind much higher rent as well as car payments, and for some people it's difficult to get along on only one income.

If i could buy a car at prices say 15 years ago, with the low rates of today my payment would be a fraction of what it is today!

Although it doesn't help that I spoiled myself on the creature comforts of heated steering/seats, cooling seats, collison alerts, smart cruise w/auto breaking, sunroof etc. However, you almost can't buy a stripped down model today and definitely can't buy one with only certain options as they sell them in "packages" and in oder to get the one you want, you also get one or two you don't really need.

Since auto prices aren't going to go down, the only thing you can do is wait for the best deal you can find. Preferrably on a late model that has already take the hit on depreciation and still has some warranty left.

Re: Is A 72-month Auto Loan The New Normal?

Shooting-For-800 — Fri, 21 Aug 2020 12:57:12 GMT

It all depends on the car, lifestyle, and APR.

I got 72 months at 2.49% with $0 down from Cap One on my wife’s new car.

It was the same rate for 48 months.

I pay $50 extra per month and are no longer upside down.

We bought a brand new Honda at 20% off sticker price.

We keep our cars for more than 72 months.

Just depends on the situation...

Re: Is A 72-month Auto Loan The New Normal?

ridgebackpilot — Fri, 21 Aug 2020 15:35:41 GMT

Last December, I got 0% APR for 60 months on a new 2019 Ford Edge. I didn't want to go for 72 months because I was concerned about being underwater on the car forever.

I didn't pay a downpayment on the car because...why would I?! With zero percent interest, I'm getting the loan for free. Why would I want to buy equity in a depreciating asset? Homes are different because they occasionally appreciate. Most automobiles depreciate forever unless they become collector cars, decades hence.

Even with zero percent for 60 months, I purchased GAP insurance to cover the expected shortfall in the first couple of years if the car is declared a total loss and I owe more on my loan than the car is currently worth. For any loan of 72 or 84 months, it would be even more important to buy GAP insurance.

Re: Is A 72-month Auto Loan The New Normal?

Flexfanatic — Fri, 21 Aug 2020 19:02:39 GMT

So here is a real life example. I purchased a 2017 Jeep Wrangler Sahara new at a lower interest rate for 72 months. Now I normally keep my cars for 8 to 10 years but I went to CarMax today and the appraisal came back for $32K and I owe less than $23K.

Why do you ask? Because Wranglers hold their value extremely well, COVID-19 is causing a increase in used vechicle prices, and a majority of my payments go to principal but I pay another $50 towards principal when I feel in the mode.

Re: Is A 72-month Auto Loan The New Normal?

Gladius — Fri, 21 Aug 2020 22:18:03 GMT

@Flexfanatic wrote:
So here is a real life example. I purchased a 2017 Jeep Wrangler Sahara new at a lower interest rate for 72 months. Now I normally keep my cars for 8 to 10 years but I went to CarMax today and the appraisal came back for $32K and I owe less than $23K.

Why do you ask? Because Wranglers hold their value extremely well, COVID-19 is causing a increase in used vechicle prices, and a majority of my payments go to principal but I pay another $50 towards principal when I feel in the mode.

So did you sell it to them or was just curious?

Re: Is A 72-month Auto Loan The New Normal?

Flexfanatic — Fri, 21 Aug 2020 23:10:04 GMT

@Gladius wrote:
@Flexfanatic wrote:
So here is a real life example. I purchased a 2017 Jeep Wrangler Sahara new at a lower interest rate for 72 months. Now I normally keep my cars for 8 to 10 years but I went to CarMax today and the appraisal came back for $32K and I owe less than $23K.

Why do you ask? Because Wranglers hold their value extremely well, COVID-19 is causing a increase in used vechicle prices, and a majority of my payments go to principal but I pay another $50 towards principal when I feel in the mode.
So did you sell it to them or was just curious?

I did not sell it to them but I plan on it. I did not have my title in hand but I'll be heading back either today or Monday to seal the deal. I may also entertain getting an appraisal for my 2008 MB C300.

Re: Is A 72-month Auto Loan The New Normal?

Gladius — Sat, 22 Aug 2020 00:58:05 GMT

@Flexfanatic wrote:
@Gladius wrote:
@Flexfanatic wrote:
So here is a real life example. I purchased a 2017 Jeep Wrangler Sahara new at a lower interest rate for 72 months. Now I normally keep my cars for 8 to 10 years but I went to CarMax today and the appraisal came back for $32K and I owe less than $23K.

Why do you ask? Because Wranglers hold their value extremely well, COVID-19 is causing a increase in used vechicle prices, and a majority of my payments go to principal but I pay another $50 towards principal when I feel in the mode.
So did you sell it to them or was just curious?
I did not sell it to them but I plan on it. I did not have my title in hand but I'll be heading back either today or Monday to seal the deal. I may also entertain getting an appraisal for my 2008 MB C300.

How do you have the title when you are still paying on it?

Re: Is A 72-month Auto Loan The New Normal?

Flexfanatic — Sat, 22 Aug 2020 02:05:35 GMT

@Gladius wrote:
@Flexfanatic wrote:
@Gladius wrote:
@Flexfanatic wrote:
So here is a real life example. I purchased a 2017 Jeep Wrangler Sahara new at a lower interest rate for 72 months. Now I normally keep my cars for 8 to 10 years but I went to CarMax today and the appraisal came back for $32K and I owe less than $23K.

Why do you ask? Because Wranglers hold their value extremely well, COVID-19 is causing a increase in used vechicle prices, and a majority of my payments go to principal but I pay another $50 towards principal when I feel in the mode.
So did you sell it to them or was just curious?
I did not sell it to them but I plan on it. I did not have my title in hand but I'll be heading back either today or Monday to seal the deal. I may also entertain getting an appraisal for my 2008 MB C300.
How do you have the title when you are still paying on it?

I should clarify. For Maryland residences after purchase we receive a copy of the title (a certificate of title), the lien holder has the actual title.

Re: Is A 72-month Auto Loan The New Normal?

ccquest — Sat, 22 Aug 2020 03:52:13 GMT

I did 72 months on my current car, but it's also at 0%. Although I get the argument of being underwater or not having equity in the vehicle, I still say it's just a matter of WHEN you're wasting your money. It's either up front as the down payment or somewhere down the line when you're negative or rolling it into a new vehicle. Most cars are depreciating assets and won't ever make you money.

There are many people extending themselves too far (I kinda was when I got my car too) by getting the 84 month loan, but if it works for their situation, more power to them.

Re: Is A 72-month Auto Loan The New Normal?

Anonymous — Sat, 22 Aug 2020 04:31:36 GMT

Despite what you might want to buy, you really have to look at this two-parter:

1.) Does the depreciation of that particular vehicle fit into the term you wish to take out the loan for?

2.) If not, do you have cash on hand to make up that difference if you ever need to get out of that loan?

Unless things have recently changed, and I mean very recently, a half-ton would not be a good idea to go 84 months unless you are buying some absolute stunner of a truck, like a Shelby F-150 or Raptor. I would not even go 84 months on a Denali.

Now I'd go 84 on a very small number of vehicles. No exotics or dicey European cars. It would have to be something you can easily unload and takes minimal depreciation in the first few years. Superduty, super crew, 4x4, diesel, long bed, top trim level. Perhaps a 4Runner or Tacoma TRD Pro. Something you know will last, and I'd make sure I was warrantied for the LIFE of the loan. If the factory gives you 5 years, that's fine, but have a plan B to obtain a warranty that your dealer or independent actually works with.