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New car loans stretch to greater lengths

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Consider some of the more striking trends in auto loan term lengths. On one hand, average durations have crept up modestly over the past five years, to almost 64 months in 2007, according to Edmunds.com. But according to J.D. Power & Associates, the largest percentage of new car loans obtained at the dealership – 41 percent – had durations of 72-77.9 months over January and February of this year. That's up 10 percentage points from the same period four years ago. Moreover, as of this January/February, 4.3 percent of loans from dealerships ran 84 months (seven years) to 89.9 months long, while 0.1 percent of the loans extended to between 96 months (eight years) and 101.9 months.

By comparison, the age of cars now being traded in at dealerships now average 5.8 years, according to Tom Libby, senior director of industry analysis at J.D. Power.

Experts link the elongating of loans to several converging factors: On the consumer side, experts point to rising car prices coupled with people's desire for fancier cars than perhaps they can afford. By obtaining a longer-term loan, buyers can trim their monthly payments, which can help them justify getting the car they want.

On the vendors' side, longer-term financing may help them sell cars, especially in today's troubled economy.

But for consumers, the longer loans aren't necessarily helpful. On the downside, for instance, they can delay the time they can afford to unload their vehicles.

According to Reed of Edmunds.com, they're "generally financed at a higher interest rate, which somewhat offsets the benefit of extending the loan."

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