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Long car loans more common and could hurt consumers

Mar 16, 2015

Credit Emilio Labrador / Flickr

The average car loan was 44 months in 2006. 

Today, it's 66 months - and even longer car loan terms of 72, 84 or 96 months are no longer rare.

Analyst Ed Kim of AutoPacific says one reason is cars have become more expensive, due to "must-have" infotainment systems, and costly technology that improves safety and fuel efficiency.

But he says the main reason is people don't have the income they had before the recession - but they have gotten just about the last mile out of their older vehicles, and need to replace them.

Kim says the trend is going to steal new car sales from the future.

"People are going to be upside down on their car loans longer," says Kim. "As a result, they're not going to be able to replace their vehicles as often as they have in the past.  At about the time that you might either want or need to turn in that vehicle, you may still very well be upside down on that loan and not able to do it."

Mike Sante of Interest.com says the longer loans are a terrible deal for consumers. 

"The longer loans are a way to get people into cars that are more expensive than they should really be buying," he says flatly.

Sante says the average new car costs $30,000 - yet the average family can really only afford a car that costs between $20,000 and $25,000.

"Then they get to the end of the month, and they say, 'well, gee, I haven't got any money left over.'  It went - a lot of it - into an excessive car payment that you really can't afford."

Sante says the longer loans steal money from other things that people should be doing - like saving for retirement.

Honda Motor Company says it offers the fewest number of long car loans in the industry - primarily because it wants its customers to still have equity in their vehicles after they finish paying off the loan.

Other car companies, however, make the longer loans widely available. 

A handful of companies get as many as 40 to 50% of their customers into loans of 74 months or longer.

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