97-Month Car Loan: Lower Payments But Heightened Risks For Consumers [OPINION]

97-month car loan is soon to become a reality due to steadily rising car prices and the ability of lenders to attract a new customer with a much longer loan period.

Reports from the Wall Street Journal cite the specific case of Nakisha Bishop who took out a loan to buy a 2013 Toyota Camry. The loan was for $23,000 to pay for her new car but also to pay off the payments still owned on her previous car.

The loan period is for 75-months or six years, for which she will pay $480 a month for the new Camry. Bishop stated her reasoning for the loan was because she "had a new baby on the way, and I was trying to keep my monthly payment a little bit lower to help afford child care." However, her current payment is $5 more than what Bishop had been paying for her previous car and the car won't be paid off until her 1-month-old daughter is heading to first grade.

I find that time frame staggering, however consumers are enticed by the longer loan terms. Banks have the ability to offer lower monthly payments, which allows for more consumers to borrow. Ms. Bishop is not the only borrowing participating in this new trend, in the US auto industry, car prices and going up and competition among lenders is pushing them to create longer time periods. Banks see the longer terms as a way to attract buyers, by keeping monthly payments under $500 a month.

In the final quarter of 2012, the average term of a new car note stretched out to 65 months, the longest ever, according to Experian Information Solutions Inc.

However long term loans present lenders with a heightened risk. Due to the incredibly long length of the loan, it takes car-buyers a long time to reach the point where they owe less on the car than it is worth. With that for lenders having "negative equity" in a car makes it nearly impossible to trade or ell the vehicle if the owner defaults on payments.

To me the longer-term loans seem like a simple recipe for disaster. Cars loss value so quickly, therefore to have to pay $500 a month for seven years is a poor investment for both the lender and the buyer. If the car owner can no longer make payments the lender is left with a 7-year-old car, and if the owner can maintain the payments for a full seven years, once they own the car it is nearly a decade old money pit.

Even car manufacturers are having mixed feelings about long-term loans. While the longer loan allows consumers to buy more expensive cars, the loans also prohibit people from replacing their cars, cutting into future sales.

What do you think about the longer loan terms? Comment below and let us know!