Credit Unions Back Off Long-Term Loans

Credit unions, which in recent years aggressively increased the lengths of their loans, reduced their average loan maturity last year.

Auto manufacturers' 0 percent financing promotions prompted credit unions to stretch loan terms to 72 months or more. Lengthening the term lowers the monthly payment.

But credit unions now appear to be backing away from extended terms.

In 2009, the largest portion of credit union car loans -- 41 percent -- ranged from 49 to 60 months long, down from 2008's most common range of 61 to 72 months, reports Credit Union Direct Lending. CUDL is a portal that allows dealers to provide retail auto loans to consumers through more than 780 credit unions.

The average term for a new-vehicle loan was 70 months in 2009, down from 72 months in 2007 and 71 months in 2008. For used vehicles, the average was 63 months last year, down from 65 months in the prior two years, reports CUDL, of Ontario, Calif.

"The shorter maturities may reflect tighter risk management," says Joe Greenwald, CUDL's vice president of marketing. He noted that loan delinquencies rose slightly in 2009.

As the number of monthly payments rises, more of the borrower's payment goes toward interest on the loan.

Greenwald also says the auto industry's greater emphasis on used-vehicle sales could result in shorter loan maturities because lenders write shorter loans on used cars.

Consumers also are trading down to less-expensive vehicles during the downturn, he says. When they buy expensive vehicles, consumers need to spread the heftier loan amount over a longer period.

Toyota Financial Services introduced 84-month loans in 2007, primarily in response to competition from credit unions. The captive offered the seven-year term only to retail customers with the best credit history.

Mike Groff, group vice president of Toyota Financial Services, says the company still offers 84-month loans, although they never represented a significant portion of its business.

Said Groff: "It remains at an average of 4 percent of our volume."


This posting is a reprint from Automotive News. To peruse our Black Enterprise article on "Car Mortgages," click here.