Auto-loan terms will continue to expand, boosting car sales as a "powerful tool" to make pricey vehicles accessible, Fiat Chrysler Automobiles' Reid Bigland told the Automotive News World Congress today.
The head of U.S. and Canadian sales for Fiat Chrysler said that long-term auto loans extending to as much as 96 months are "a very powerful tool to make big-ticket items more affordable."
As the economy grows stronger, more consumers have already sated their desires for new vehicles, so expanding auto loans will encourage sales, Bigland said.
"Pent-up demand has largely run its course," he told Automotive News.
Buyers and lenders alike realized the importance of a car during the recession.
"Banks have realized that, even during the depths of the recession, consumers were willing to make their car payments even more than they would their house payments," Bigland said. "It's very difficult for somebody to function without a car. It's difficult to get to school, to get to work, to have a girlfriend without a car."
Loans as long as 96 months are becoming increasingly common in Canada; however, the United States is "still trying to wrap its head around 84-month loans," Bigland said.
He predicted that U.S. vehicle sales will hit 17.1 million units this year, which would top 2014's 16.5 million new vehicles sold.
In December, the average auto loan hit a record of 66 months, or five and a half years. Experts warn that buyers could get trapped in a debt cycle where they are continually paying off a new vehicle because of the length of the loan.
Consumer Reports recommends keeping the loan time as brief as possible, noting that a three-year loan (or half the average new-vehicle loan term) lets buyers build thousands of dollars of equity by the end of their first year of driving the car.
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