Overhaulin'

Why are the rates for longer new car loans less than shorter terms ?

Makes no sense to me. average rates across the country..... 36 Month New Car Loan 6.32% 6.35% 48 Month New Car Loan 6.39% 6.41% 60 Month New Car Loan 6.43% 6.45% 72 Month New Car Loan 4.28% 4.46% Im almost positive that 72 month loans have more defaults than shorter terms.

Public Comments

1. I noticed that at my credit union just last week. Very interesting. My only guess - they want you to make the longer loan. More profitable for them, since it earns them more money. Also, since the payments are smaller, maybe a person is less likely to default. Maybe the shorter loan is more risky for them. IT could be all about statistics. It was the same thing for mortages. The shorter ones had a higher APR - never, ever made sense to me. Did the shorter one any way.... /
2. Two reasons, first there is an amount of work, time and expense in setting up a loan and secondly the profit element. The bank will do credit checks on you, verify the vehicle is actually owned by you or the seller, spend time creating the documentation etc. So for a short loan, they have to recoup the whole cost over a few months. If you think this is a small cost, look how many people work in this area of the bank - their processes are probably quite inefficient and I bet there is a lot of cross checking to prevent fraud. The longer you have the loan the better - for them. Also longer loans are more likely to be on newer cars which are better to reposess as they have a higher resale value.