Rising interest rates and high prices are pushing more used-vehicle buyers into “frighteningly” lengthy loans, stretching consumer budgets while creating both opportunities and risks for Canadian automobile dealers.
Used-vehicle loans with financing terms of 84 months now account for about 45 per cent of the used-vehicle market, up from 38 per cent last year and 25 per cent in 2021, said Robert Karwel, senior manager of J.D. Power’s Canadian automotive practice.
“You only increase your amortization for one reason: It’s to maintain a lower monthly payment to maintain the family budget,” Karwel said.
J.D. Power collects used-vehicle data from franchised dealers and a number of used-vehicle centres, Karwel said. That means the sample skews to the “newer and nicer” side of the used-vehicle market, with most vehicles up to eight years old.
But longer loans are becoming more common across the entire segment.
Buyers with poor credit or no credit are also increasingly opting for a “term stretch” to 84 months to keep their monthly payments within reach, said Andrew Abraham, CEO of the Ottawa-based subprime lender OCM Auto Financing Group Ltd.