Long-term loans go bye-bye ... but that's a good thing

Donna Harris covers retail issues for Automotive News.
Several studies over the last year have concluded loan terms of 72 months or more are finally out of fashion. Even credit union data indicate the ultra-long-loan trend is over — and the credit unions were particularly aggressive about promoting longer terms to compete with the auto manufacturers' 0 percent financing.

The latest data on this come from Kelley Blue Book, which says that by far the most popular loan term is 60 months. The 48-month and 36-month categories are about equally favored. The 72-month slot is a distant fourth, surpassing only the 24-month term.

Sure, extending the loan produces lower monthly payments — and the KBB study shows the promise of low monthly payments is still a significant lure for customers today. But 0 percent interest was the most popular draw, and that lowers payments, too.

The study concluded that as a result of the slumping economy and credit crisis, budget-conscious car buyers want to reduce their debt. They're making larger down payments and purchasing more affordable vehicles within their budgets.

So the bad news is dealers won't be making the finance profit they did a few years ago, and the good news is the trade cycle will be shorter. More customers will return to the showroom sooner and when they do, they'll have equity in their trade-ins.

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