LAS VEGAS — Among all new-vehicle loans, the share with maturities of 73 to 84 months has nearly tripled in the past eight years, data from Experian shows. Used-vehicle financing is seeing the same general trend.
In the first quarter of 2009, 11.7 percent of new-vehicle loans were for 73 to 84 months, Karl Kruppa, senior automotive solutions consultant for Experian, said at CU Direct's Drive '17 conference here. In the first two months of this year, in contrast, 33.8 percent of loans were for 73 to 84 months.
Even within that bucket, term lengths are creeping up. In the fourth quarter of 2010, three-quarters of new-vehicle loans in the 73- to 84-month category had maturities between 73 and 75 months, Kruppa said. "Now we are seeing more and more lenders willing to go all the way up to 84 months," he said.
In the fourth quarter of 2010, 17.1 percent of new-vehicle loans were 84 months. In the fourth quarter of 2016, 28.7 percent of new-vehicle loans were 84 months.
Extended-term loans can leave consumers upside down when they seek to trade in the vehicle, since the borrower is paying off the old loan on a slower schedule.
In the used market, most long-term loans still are on late-model used vehicles, Kruppa said. For example, about 30 percent of 2016 model-year vehicles are financed with 73- to 84-month loan terms. But lenders also are approving long-term loans on vehicles more than 5 years old.
"You know what's kind of startling?" Kruppa said. "There's actually 10 percent of [2010 model-year] used vehicles being financed at a term between 73 and 84 months. Longer terms are here, and more and more lenders are willing to do that."
Loans carrying maturities of 73 months or longer made up a significant chunk of the overall portfolio for banks, automakers' captives, credit unions and independent finance companies in the fourth quarter of 2016. The segment's share was largest, however, at credit unions, at 30.8 percent.
Still, loan terms at credit unions are relatively evenly distributed. The share of terms running 61 to 72 months was 31.8 percent, and loans of 60 months or fewer made up 37.4 percent of the portfolio.
Lenders in the U.S. allow very few loans above 96 months, Kruppa said, but in the fourth quarter, credit unions supported more than half of the auto finance market's loans in that segment.