Adjustable Rate Auto Loans Only Make Sense
Many mortgages have an adjustable interest rate. It protects the buyer in a low interest market and protects a lender if rates go mad. Why shouldn’t the same standards apply for auto loans?
An adjustable rate on a new car loan did not make sense in past years because the average loan term was shorter, 35 months to be exact. The current trend is for longer loans, 62 months on average. Longer loan terms mean a greater chance for the interest rate to become a burden for the buyer or lender. If the loan becomes too much of a burden, the buyer may walk away from it and default. The lender faces a higher default ratio and a possible loss of profit.
Adjustable rate auto loans protect the pocket of lenders and consumers alike. They are somewhat popular in Canada and could easily be adapted to the American market. Maybe we will see them in the near future.