Introducing the 97-month car loan

**JoeP** · 04-09-2013, 04:18 AM

Originally posted by kork13 View Post

Introducing the 97-Month Car Loan - WSJ.com

YIKES!! I hate financing a car beyond 2-3 years... There's no way I could talk myself into financing it for 8 YEARS..... ugh... The sad part is that people see this as a valid answer.... "Hey, my payment is only [such and such]!! That's totally affordable!"

Long term loans like these are the answer to the famous car salesman question: "So, how much can you afford per month?" Facing a situation where someone REALLY wants a car they clearly cannot afford with cash let alone a 4 year loan, having the option to have low payments always looks good on the surface.

**bjl584** · 04-09-2013, 04:51 AM

8 years? That is insane.

I don't drive that much anymore, but if I was still living in my old house and had my old commute, then a brand new car would have over 160,000 miles on it by the time I paid it off. Crazy....

**disneysteve** · 04-09-2013, 04:55 AM

Originally posted by bjl584 View Post

8 years? That is insane.

I don't drive that much anymore, but if I was still living in my old house and had my old commute, then a brand new car would have over 160,000 miles on it by the time I paid it off. Crazy....

The other reality is that many people never even pay off their car loan before getting the next car. They just roll the balance into the next loan. That makes them even more upside down on the new car (which is automatically upside down due to instant depreciation). People end up owing $30,000 on a car that might only be worth less than 20K.

**JoeP** · 04-09-2013, 06:07 AM

Lenders are taking advantage of the fact that some (most?) borrowers lack the knowledge required to assess the risks and ramifications of signing on the dotted line.

**bjl584** · 04-09-2013, 06:32 AM

Originally posted by JoeP View Post

Lenders are taking advantage of the fact that some (most?) borrowers lack the knowledge required to assess the risks and ramifications of signing on the dotted line.

They are to a point. But, I think that there are people on both sides of the aisle that are completely clueless about finances. The people working at the dealerships (maybe excluding the owners) probably don't know anymore about money than the customers buying the cars. We live in a society completely conditioned to focus on monthly payments only. It's natural that financing would be crafted to reflect this mindset.

**JoeP** · 04-09-2013, 07:28 AM

Originally posted by bjl584 View Post

They are to a point. But, I think that there are people on both sides of the aisle that are completely clueless about finances. The people working at the dealerships (maybe excluding the owners) probably don't know anymore about money than the customers buying the cars. We live in a society completely conditioned to focus on monthly payments only. It's natural that financing would be crafted to reflect this mindset.

Long lending terms fulfill a need. I'd offer that the "need" itself is not really a need in the formal sense, but rather is derived from a combination of short sighted convenience, financial ignorance, and the inability to assess risk.

**disneysteve** · 04-09-2013, 08:14 AM

Originally posted by JoeP View Post

Long lending terms fulfill a need.

No they don't.

Nobody needs an 8-year car loan. If you have to stretch the payments out for more than 3 or 4 years, you are buying a car you simply can't afford.

**JoeP** · 04-09-2013, 08:50 AM

Originally posted by disneysteve View Post

No they don't.

Nobody needs an 8-year car loan. If you have to stretch the payments out for more than 3 or 4 years, you are buying a car you simply can't afford.

The rest of my post said that the "need" itself is not a need in the formal sense.

Also, term adjustment is a response to the "need" for sellers to attract people who would otherwise be turned away; affordable monthly payments enable more sales. It is the downside of those offerings that many ignore or do not recognize.

**disneysteve** · 04-09-2013, 09:05 AM

Originally posted by JoeP View Post

Also, term adjustment is a response to the "need" for sellers to attract people who would otherwise be turned away; affordable monthly payments enable more sales. It is the downside of those offerings that many ignore or do not recognize.

Well that's true. It fulfills a need for sellers to sell outrageously priced vehicles to people who can't afford them. I'm not sure that's a "need" we should be filling however. It is just like a few years ago when we started hearing about 40 and 50 year mortgages.

**bjl584** · 04-09-2013, 09:29 AM

Originally posted by disneysteve View Post

Well that's true. It fulfills a need for sellers to sell outrageously priced vehicles to people who can't afford them. I'm not sure that's a "need" we should be filling however. It is just like a few years ago when we started hearing about 40 and 50 year mortgages.

I wonder if all of it comes soley from the lenders or if some of it comes from politicians pressuring lenders to extend credit to constituents who would otherwise not qualify for a loan?

**disneysteve** · 04-09-2013, 09:51 AM

Originally posted by bjl584 View Post

I wonder if all of it comes soley from the lenders or if some of it comes from politicians pressuring lenders to extend credit to constituents who would otherwise not qualify for a loan?

I'm sure that's part of it too. Look at the whole housing mess. A lot of that was due to the government encouraging banks to give mortgages to people who couldn't possibly afford them.

**snafu** · 04-09-2013, 03:29 PM

97 Month Loan...That's sick! Do you think it means that car prices will double? Does truth in lending require the seller to tell the buyer the total sum spent in interest? Does the payment schedule show the breakdown between principal & interest? What bothers me is that it will affect the poorest, most vulnerable groups who just don't understand anything past 'how much each month.'

Introducing the 97-month car loan