Is A 72-month Auto Loan The New Normal?

adelphi_sky · ‎08-20-2020

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?

Flexfanatic · ‎08-20-2020

@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.

CreditCuriosity · ‎08-20-2020

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...

gorgon · ‎08-20-2020

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.

blindambition · ‎08-20-2020

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.

sccredit · ‎08-20-2020

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.

nycsimone · ‎08-20-2020

@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.

ldkcivilservant · ‎08-20-2020

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

adelphi_sky · ‎08-20-2020

@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.

sccredit · ‎08-20-2020

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.