Here's Why Car Dealers Prefer Leasing Over Long-Term Auto Loans

Here's Why Car Dealers Prefer Shorter Auto Loans for  CustomersCar dealers would rather lease to their customers to keep them out of the market for a shorter period of time, which gives them a better shot at gaining their loyalty.
This means they’re not thrilled with the prevailing trend of the last few post-crisis years — longer term loans.
Last year, the percentage of auto loans reaching 73 to 84 months jumped to nearly 28 percent. Six-year and longer loans make up close to 20 percent of all new vehicle purchase transactions. If you are thinking of a vehicle transaction then you may want to check out Money Expert, you can have a look at their deals online and find the best one to fit your car dealership needs.
Meanwhile, auto leasing staged a comeback in 2013 as these non-purchase deals accounted for nearly 30 percent of all new vehicle financing. That level had not been seen since before the financial crisis.
“Do we like 84-month loans? No,” said Brian Leary, vice president-finance and insurance for the Larry H. Miller Dealerships based in Sandy, UT, as published by WardsAuto. “But if that is the only option available for the customer, we need to use it to get them in a vehicle.”
Leary spoke at an American Financial Services Assn. conference held in conjunction with the National Automobile
Dealers Assn. convention in New Orleans. The event was covered by WardsAuto.
“Long-term financing is not good for the industry,” said David Williams, an NADA director and dealer principal at Anchor Buick GMC in Elkton, MD. “A 97-month loan is not good.”
Nonetheless, dealers have to make the customer happy, and lower monthly payments is what they are seeking, despite negative equity issues.
The average loan on a new car climbed to $26,719 in the third quarter of 2013, up by $756 from a year earlier, and the most in at least five years, according to data from Experian Plc.
However, average monthly payments on new car loans rose only $6 to $458. Banks and finance companies offered lower rates and more time to repay loans, keeping monthly payments relatively low.
Leasing can offer even lower monthly payments than long-term purchase loans, although consumers sometimes have to put down more cash to get the best lease deals. Williams said they must educate customers on leasing because “leasing is good for the industry.”
Loans of 72 months and beyond now finance 30 percent of auto deliveries, according to Deirdre Borrego, a J.D. Power vice president. “It’s not stretching much beyond 72 months.”

Leave a Reply

Your email address will not be published. Required fields are marked *