Canada Car Loans

Bank of Montreal Saying No to Long-Term Auto Loans?

Raymond O’Kane, one of the head honchos at Bank of Montreal (BMO), is an outspoken opponent of longer-term auto loans. Or, perhaps more accurately, a proponent of shorter-term loans. Recently, he expressed to Auto Finance News the advantages of shorter lending terms for consumers:

  • Thousands saved in interest
  • Less negative equity
  • Faster return to market (a benefit for dealers)

O’Kane, however, isn’t just talking the talk.  BMO has walked the walked by increasing interest rates on auto loans of 84 months and longer. This mitigates risk for lenders, of course, because long-term financing is a risky proposition. After all, it’s very difficult to estimate what the value of a vehicle will be after 84 to 96 months.

The move toward longer and longer finance terms has largely been due to consumers wanting to afford more car for the same monthly payment. The longer the loan, the smaller the monthly payment. However, this is dangerous for consumers, who not only pay significantly more interest in the long run, but after 84 to 96 months vehicle maintenance costs could add significantly to one’s vehicular expenses on a monthly basis.

That said, at the recent 19th Annual Vehicle Finance Conference, auto finance executives from such large lenders as Santander USA and Ally Financial expressed an opposing opinion, stressing that longer-term finance periods aren’t a problem–largely because newer vehicles are lasting so long.

You can read more at Auto Finance News