Y7

In early 2020, 72 months was the most popular loan term, with many borrowers taking out 84-month loans. What are the implications of long loan terms for the likelihood that a borrower will default on a loan? Why would auto finance companies have been willing to make such long loans? Why would people be willing to borrow for such a long term?

The longer the car loan, the

more

less

likely the borrower will default, since longer loans result in

more interest payments on the loan and a higher

fewer interest payments on the loan and thus a lower

final payout for the car.

Finance companies are willing to make such long loans because

it lowers the borrower's default risk

they are able to sell more cars

. People who are willing to borrow for such long terms are likely to have

high incomes and good credit

low incomes and poor credit

and value the low monthly payments that come with the longer term.