Still, with terms as long as 96 months, some experts say there is cause for concern.
Ninety-six-month loan terms leave the customer with too much negative equity for too long, said Bird, which is one reason leasing has grown in the last few years.
Through mid-June, nearly 29 per cent of trade-ins had negative equity. The average negative equity amount was $6,983. Both the percentage of trade-ins with negative equity and the amount of negative equity has risen consistently since 2012, according to J.D. Power.
“A lot of consumers like to get a new vehicle every three to four years,” Bird said.
“Long-term loans were some-thing that was created to fill the gap in the mid-2000s,” he said.
Buckingham added that customers might be in for a rude awakening “when customers who typically trade in their vehicle in about three years realize they have high levels of negative equity,” he said.
But overall, Bird said, lenders are very sophisticated: “They make decisions based on experience and good data.”
“I don’t see any doom or gloom with respect to lenders based on current behavior. They are actually managing it very well.”
Lenders are also taking a fresh look at non-prime. In the last five to 10 years, the industry has dissected the nonprime business, which accounts for about a third of the total auto finance market, more than ever.
Scotiabank has a division, Scotia Dealer Advantage, that originates only nonprime loans to help consumers establish or re-establish their credit, aiming to elevate them to the prime segment. And GM Financial focuses only on leasing and nonprime lending in Canada. General Motors has relationships with a few banks to finance prime consumers.