Long loans are a necessary evil, dealers say

Everyone agrees that superlong loan terms are bad for the industry, but it seems no one wants to give them up first.

Long loans -- between, say, 72 and 84 months or even longer -- likely will leave customers upside down at trade-in time, owing more on their car than it's worth. Brand loyalty and dealership loyalty fall off at the end of an extremely long loan term, experts say.

"Long-term financing is not good for the industry; we all know that," David Williams, president of Anchor Buick-GMC of Elkton, Md., said at the American Financial Services Association's Vehicle Finance Conference in New Orleans. "But we do it for a reason."

According to Experian Automotive, longer terms and low interest rates have kept the average monthly payment nearly flat despite bigger and bigger loan amounts. In the third quarter of 2013, the average new-car loan term was 65 months, up one month from a year ago; the average used-car loan term was 61 months, also up one month. New or used, the 72- to 84-month category was the fastest growing term.

"Customers come standard with a lot of variance in their situation -- credit score, trade-in issues. There have got to be options," said Brian Leary, vice president of finance and insurance at Larry H. Miller Dealerships in Sandy, Utah.

"Do I like 84-month financing? No. Is it good for customer satisfaction? No. Is it good for retention? No. But if that's the only option you've got to make it affordable for the customer, that's got to be available for the consumer."