Why loan length doesn’t matter

Here’s another reason not to fret over longer loans: Their numbers are misleading.

Consider these comments from Dave Mondragon, executive director of U.S. sales for Ford and Lincoln at Ford Motor Co.

Speaking at Automotive News’ Best Dealerships To Work For event last week in Chicago, Mondragon noted that the most recent data show that 60 percent of all vehicle finance contracts are for 61 months or longer.

On the other hand, he said, a vehicle purchased with 72-month financing is traded in, on average, after 48 months. Vehicles purchased with 60-month financing are traded in, on average, after 42 months.

That’s not all. Given the strong used-vehicle prices of late, consumers have positive equity in their vehicles well before they typically trade in the vehicles for other ones.

For example, Mondragon said the buyer of a $30,000 Ford Fusion financed for 72 months at 0 percent has positive equity at 38 months -- or 10 months ahead of the usual trade-in time.

Automakers and finance companies are eager to market to consumers as soon as they have positive equity in their vehicles. For starters, it’s always good to make the sale before the competition even knows that consumer is shopping.

As Mondragon put it, the moment when a consumer has positive equity in the vehicle, whether 38 months or some other point, is the “sweet spot” for anyone selling cars.

You can reach James B. Treece at jtreece@crain.com

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