More Buyers Opt for 8-Year Auto Loans

As I keep mentioning, new cars are expensive. Sure, they’re loaded up with all kinds of tech your phone will surpass two years later, and that’s partly to blame for the price inflation. There’s also the insatiable thirst for SUVs and trucks. How are people affording the lofty prices? Long loan terms.

It’s a simple dealership trick: they’re focusing on the monthly payment. You should never, ever, just look at the monthly payment on your car loan. Focus on the total price, then whittle it down to the monthly amount, not the other way around.

Forget 84-month auto loans. The Financial Times recently highlighted that 96-month auto loans are on the rise. Yes, 96 months, or eight years. Will these people even keep their vehicle for eight years, and what will it be worth when they’ve paid off the loan?

Not everyone is a financial genius, but we have a problem in this country. It’s stupid money management decisions like this that lead to serious economic situations. The Financial Times reports that Americans owe a record $1.2 trillion on cars. I work in this industry, I get a cut of those sales figures in various ways, but this is scary and dumb. The last thing the auto industry needs is a financial collapse, but the writing’s on the wall. As the report notes, these longer-term loans have higher default rates. No good.