I was amazed to see this
Honda recognizes that extending terms will eventually come back to haunt the manufacturer and possibly throw another crippling blow to our economy.
SEVEN years?
Cripes, that’s insane.
Well, sure, they are right. I guess people will still try to get out early, by refinancing the existing debt into a new loan on another car. That will work, maybe once, and then there’s not enough security in the new car. So the owner can’t get out and doesn’t buy a new car. Car sales drop in the US. People let the car get repossessed. Somebody will get burned, just like in the mortgage rip off that almost crushed our economy in 2008. I’ll bet it’s investors chasing a higher interest rate on their savings through money market funds.
This is going to start another 20 pages of comments, I’m afraid. No reason why Nissan shouldn’t sell more than Honda? Ahem, quality and dependability, dealers? Their track record hasn’t been all that comforting given oil usage in some of the engines and other issues. Just my opinion.
I do believe that six years or longer is too much normally because it is highly unlikely you will buy new and keep it that long. Then you’ll just end up rolling over the balance and be in that death spiral over time. You do need to consider though that 1 or 2% interest versus earning 10-20% on compensating balances, makes financing more reasonable, especially on a $40-60K vehicle.
Everyone has different issues though and needs to make sure it makes sense to them. We hadn’t bought a new car for a while due to college expenses and job upheaval so therefore had no trade worth anything. We went a little longer term to get back in the market again. It just made sense and worked for us to get back to a 3-4 year trade routine. We weren’t about to pay cash or pay off $40K plus in two years. Just didn’t make sense. Some would say, well you should just buy used but that is really non-sense. You lose the warranty, pay higher used prices, and at the end are worse off. Plus may have an issue with reliability. I don’t ever want to drive a car with 200K cross country again. But everyone is different and they should do what makes sense for them. If you get into a six year loan though, you’re going to have to keep the car to the end whether you like it or not and it will be worth nothing at the end.
IMHO when cars get to the point that seven year loans are required to buy them, it’s time manufacturers look at how they price cars. It’s also time the feds look at the economic impact of their longtime orgy of regulations from the myriad of agencies all created by repeated orgies of oversight legislation and freewheeling backroom parties of rulemaking.
Granted, the affordability of cars is intertwined with a highly complex economy, but something is badly broken in the system. When I bought my first new car a standard loan was two years. An economy car was about 25% of average gross annual income. Now it’s six years, and an economy car is 50% of average gross annual income.
Bing’s right. This will go 20 pages easy.
What’s even sadder is the fact that so many car owners who are upside down on car loans will head to a dealer and get even more upside down because of those idiotic commercials promising to make them right side up.
In tiny print or sped up audio that “negative equity will be applied to the new loan” is always present.
I remember about 25 or 30 years ago Mercedes started offering 10 year financing. Talk about owing your soul to the company store.
Most used car places will give you a 5 year loan on a 4-5 year old car. So in the last few years of the loan’s term, you end up with a car that is beginning to nickle and dime you either way I guess.
keys to keys is a great summation of why you can be a fan of the industry and promoting it long term, or be a short term person and go for the quick win at the cost of future growth.
difficult to say what is best when your bonus is dependent on one or the other variable.