97-Month Car Loans May Be Coming And You May Not Qualify

Are you ready for a 97-month car loan? Some auto sellers are now offering the loans that allow you to make monthly payments on your new car for over eight years, according to a recent report in The Wall Street Journal. And you thought your student loan was never going to go away.

Even if you’re not ready to accept a 97-month car loan, many buyers are agreeing to longer payment plans. In the last quarter of 2012, the length of the average new car loan topped an all-time high of 65 months.

Other sellers are once again more willing to make subprime loans to high-risk buyers who are undergoing financial challenges and thus have a much greater chance of being unable to pay off the loan. A recent Reuters report said the subprime loans for new auto sales had jumped 18 percent in 2012 alone. That’s about 6.6 million high-risk borrowers, based on numbers from Equifax, a leading credit-reporting firm.

As part of the economic stimulus, the Federal Reserve has slashed interest rates. If there’s anybody out there who still has a savings account, you’ve already noticed that the interest rate is close to zero.

That means that investors, including large investment houses, have little choice but to chase higher-risk investments if they want to get any kind of decent return on their money. With subprime car buyers willing to pay interest rates over 20 percent, they become an attractive target for investors — even if some of them do ultimately declare bankruptcy.

WSJ said that car dealers don’t feel that they’re taking much of a risk. Used car prices have soared along with new car prices, creating “limited downside…[I]f a buyer defaults, the bank can repossess and sell cars with limited losses.” It doesn’t hurt that cars are lasting longer these days. The average age of today’s vehicle is about 11 years.

The people who are getting the 97-month loans aren’t necessarily the subprime borrowers.

You might get offered the longer loan if you’re a good credit risk looking at a more expensive car that you plan to keep longer while trying to manage a monthly payment below the magic number of $500 per month.

However, some auto sellers aren’t thrilled about keeping good credit risks off the car lot that long. A spokeswoman for Ford, Margaret Mellott, told WSJ that they don’t want to extend new car loans much longer than five years or 60 months.

Eight years is just too long to miss that car new car smell even if you do qualify for a 97-month car loan.

[new car buyers photo by Yuri Arcur via Shutterstock.com]