By Ray Birch
ONTARIO, Calif.—Auto loan terms continue to climb as consumers attempt to keep the monthly payment affordable and CUs are less shy about going out as long as 96 months.
CU Direct data shows that credit unions are granting more 96-month loans, and overall, they are writing less business for terms of 72 months and below—a popular loan bucket not long ago.
Paul Kirkbride, SVP of CU solutions at CU Direct, told CUToday.info the national uptick in loan terms continues.
“We are seeing the 84-month loan term become more popular,” said Kirkbride. “Overall we’ve seen an extension of about a month in the last year, going from an average of 76 to 77 months on new, and then 66 to 67 on used.”
Frank Rinaudo, SVP at GrooveCar and CU Xpress Lease, Hauppauge, N.Y., said he is seeing a marked increase in the length of credit union terms. “Absolutely terms are increasing. We have several of our credit unions offering 96-month financing on new cars and as high as 84 on used.”
Looking closely at the data, Rinaudo said that new cars with loan terms from 61 to 72 months account for 44% of GrooveCar business, 73 to 84-month terms represent 34%, and terms of more than 84 months claim 17%.
“So a very small portion of our new business is less than 60 months,” he explained. “On the used side 55% is between 61 to 72 months, and 29% is between 72 to 84 . . . These longer terms are up dramatically from 2013.”
Terms Past 72 Months Increasing
Second quarter data released by Experian also shows consumer and lender interest growing for terms past 72 months.
“The fastest growing area is loans between 73 to 84 months, which accounts for about 25% of all new financing and about 14% of all used,” shared Melinda Zabritski, senior director of automotive finance for Experian Automotive, Schaumberg, Ill. “Within that category is big spike around month 75.”
Zabritski said the data does not show a large amount of financing over 84 months, under 1%, but that CUs are leading the way in loans 85 months and longer.
Analysts continue to cite rising car prices as the main reason terms are extending as consumers want more car but need to make it work with the monthly budget. Rinaudo added that consumers are not putting as much down on the car today, another reason loan amount and term are rising.
Kirkbride pointed out that consumers feeling better about the economy and their own finances has them reaching for more expensive cars, and that the longer-term loans tend to stratify around higher-priced vehicles. “Loans for base models fall more in the 60- to 72-month range.”
CUs Managing The Risk
CU Direct’s Kirkbride, too, sees CUs managing risk as they extend term, handing out the longer-term loans to high-quality borrowers. “Credit unions have generally been comfortable going a little longer on term. But on the flip side they buy more conservatively to offset some of the risk.”
Experian data shows repossessions increased 70% last quarter. But for banks and credit unions, the rise should not be concerning.
“We did see a big spike last quarter,” said Zabritski. “However that increase is being driven by the finance companies, which have expanded heavily into deep subprime. Banks, credit unions and captives are still showing decreases here compared to last year.”