America’s Love for SUVs, Pickups Means Long-Term Auto Loans

Volkswagen's Atlas Tanoak , a new dual-cab, short bed pickup truck concept. (Mark Kauzlarich/Bloomberg News)

Americans’ love of pricey pickups and SUVs is stretching their wallets, leading lenders to bend over backward to keep monthly payments affordable.

Fiat Chrysler Automobiles NV’s Ram truck brand had the longest average loan terms in the industry last year, at 73 months, according to consumer credit tracker Experian. The automaker’s Jeep and Fiat lines also placed among the top five, along with Mitsubishi and General Motors Co.’s Chevrolet.

Long-Term Debt

More than two-thirds of U.S. auto sales are light trucks, which includes pickups and SUVs, and new-fangled tech inside them has helped drive prices to record highs of more than $35,000. While this has helped automakers mint money even as total industry sales slip, it also means the debt burden on consumers is getting heavier. Lenders are stretching out loan terms to keep monthly payments manageable and help dealers close sales.

“I don’t think we’re going to see any reduction in terms until we see changes in pricing or what consumers are buying,” said Melinda Zabritski, a senior director at Experian. “If anything, we’re starting to see more lenders who would previously do a 72- or 75-month move into the 84-month loan category.”

One factor contributing to Fiat Chrysler’s long loan terms is that it lacks a wholly owned U.S. finance unit, Zabritski said. Santander Consumer USA Holdings Inc., which operates Chrysler Capital, financed a minority of the automaker’s retail sales last year. Much of the remainder was handled by banks and credit unions that tend to offer longer loan terms, she said.

Longer terms increase the risk that lenders could get stuck with bigger losses on defaults. And consumers may later be squeezed out of the new-vehicle market if they owe more than their car is worth, Zabritski said.

“If they keep pushing the term out, they will be upside down,” she said, referring to consumers owing more on their vehicle than what it’s worth. “They may have to keep the car a little bit longer, or they have to come up with more cash.”