Are 84-Month Auto Loans ‘Stupid?’

An industry insider recently spoke out against longer-term auto loans. John Mendel, the U.S. Sales Chief at Honda, recently pointed out the possible downfall with longer and longer auto loan terms. Last week at the North American Auto Show Mendel explained that this potentially growing trend in auto lending.

On the subject, Mendel said, “You’re ringing the bell on a new-car sale, but that customer is saddled — they’re stretched so thin…” (Extended-term loans are) “stupid not just for us, but for the industry.” Mendel was speaking about car loans more and more commonly reaching 84 months or more. This often lowers monthly payments for the consumer but makes it difficult to pay the vehicle off. Mendel reportedly also told Bloomberg at the auto show that Honda will avoid those longer-term loans if possible.

Tom Webb, who is a Chief Economist at Manheim Consulting, also spoke out about the longer loan terms during the auto show last week. Webb told a group of reporters that this loan scenario is not new. Webb said, “We’ve seen this movie before, we know how it ends, and it’s not pretty.”

Webb and Mendel clearly feel that longer-term auto loans are detrimental to the automotive industry. The question is, are those loans really on the rise? An Experian PLC report shows that more than 25 percent of auto loans between October and November of 2014 were for loan terms between 73 and 84 months. In 2009 and 2010, the number of loans fitting that criterion was reportedly only 10 percent.

Melinda Zabritski, the Senior Director of Auto Finance for Experian, told Bloomberg that longer-term auto loans could create a vicious cycle of negative equity. Zabritski said, “Something has to be done to keep the market affordable, or consumer buying is going to have to change and we’ll have to return to less frequent purchases.” How often do you see longer-term loans being accepted at your store? Do you support the trend of 84-month auto loans? Is the longer-term loan trend sustainable over time?