At the Detroit Auto Show, Honda’s U.S. sales chief made some interesting comments regarding long-term auto loans, voicing his disapproval of the measure being employed to boost car sales.
“You’re ringing the bell on a new-car sale, but that customer is saddled — they’re stretched so thin,” he said. This type of loan is “stupid not just for us, but for the industry.”
In 2014 the United States had is best year of automotive sales since 2006 and the numbers are expected to get even better in 2015. It would mark six straight years of growth, the longest such streak since the World War II.
Other analysts are not as pessimistic of the longer-term loans. As Jalopnik’s Matt Hardigree points out, interest rates are very low and likely to remain low for some time. It’s also rare that people are buying a car way outside of their price range and financing it over seven years.
One risk of the long term loan is that vehicles tend to depreciate quickly. If you plan to keep the vehicle a long time then this isn’t an issue. As long as you can get a good warranty, there is little downside to lowering your monthly payment with a loan term that is one or two years longer than normal.
Source: Bloomberg
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