It used to be that the standard term for car financing was 36 months. Now, 84-month terms are common.
The term “upside-down” is pretty common, too.
It’s reasonable to assume that when spreading payments across a longer timeframe that it would take longer to catch up to the principal owing, the point at which buyers don’t owe more than their vehicle is worth. Apparently that’s not common knowledge.
A story in the January issue of Automotive News Canada pointed to buyers being so focused on the dollar value of the monthly payment that they don’t realize those payments are barely making a dent in the principal for the first few years, when in a normal 36-month loan situation, the vehicle would be paid off.
Longer financing terms keep the monthly payment low and competitive — and a point could be made that payment-focused buyers have made it easy for automakers to increase the list price of their vehicles without anyone fussing over it — but if buyers want out early they’re stuck with paying the balance for a vehicle they no longer own. More likely, the principal owed is rolled into the financing of another vehicle, making the situation even worse.
Banks would generally set buyers straight on this before they sign. But car dealers, now also in the role of providing financing — being enablers — are actually trying to move product using those terms. They’re a sales tool. Clearly, giving any financial advice that impacts a sale presents a conflict of interest. But is it up to the dealer to point out the potential pitfalls? Should the customer not understand that the sales staff is trying to sell a car?
While they might not have all the info they need, customers should be well aware that they’re on the opposite side of the bargaining table, and barring misrepresentation, outright lying and issues of non-disclosure, as long as the dealership has presented all the information, just how liable is it? Those waters are murky, but according to the Automotive News Canada story, customers who feel wronged might not always get the justice they want, but they tend to get the last word in the form of bad reviews and social-media tirades.
Dealerships can struggle with the morality of their situation, but it’s likely not in their best interest to push paperwork in front of customers. Opinion-free full disclosure is in the best interest of both buyer and the seller.