I can see it now. An ad in the local newspaper: REPO; 1996 Chevy Sprint, fair condition, some rust, 218,000 km, auto. The thought that an 8-year old car could still be repossessed is silly, but if lenders have their way it will be the norm in a few years.
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| With such a long term, you pay more interest, the bank gets richer, and the manufacturers get an alternative to 0 percent financing. (Photo: Mercedes Benz) |
After all, why wouldn't they want to push it? The longer the term the more interest you pay, and the richer the bank gets.
The car manufacturer likes them better too, as the longer term loans are an alternative to 0 percent financing deals currently being offered by the automakers' captive credit divisions.
The banks like it even more as they are struggling in the auto sector lately due to an inability to compete with the captive lenders - there aren't any banks that I know of that will want to pay you to take out a 0 percent loan.
The idea is still in its infancy though, with a sprinkling of small credit unions and only a single multi-state finance company offering the service, with the 96-month loans making up a small portion of their total business. But the opportunity is ripe enough that others are watching closely.
A recent story in Automotive News stated that Covina, California's Bayview Auto Finance Group, servicing about 6,000 dealers in 24 states, began to offer the 96-month loans two years ago, approximately the same time 0 percent loans started cropping up.
"With zero percent loans for 60 months, we lose some business," stated Abe Tukhi, Bayview's territory manager. "But we get a very different client. All of our customers have excellent credit."