Independent from Long Beach, California on March 18, 1976 · Page 18
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Independent from Long Beach, California · Page 18

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Long Beach, California
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Thursday, March 18, 1976
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Page 18
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A-18-JNDEPENDENT (AM) PRESS-TELEGRAM (PM) low nmh. c»ut., TUT».. MarcK n. it; Buyers stretching payments up to 4 years -New-car loans turning into mini-mortgages By OWEN ULLMANN DETROIT (AP) - More and more consumers are stretching n e w - c a r payments for up to (our years in the wake o( price increases t h a t h a v e transformed customary short- term auto loans into mini- mortgages. Just three years ago, new-car financing terms for more than 36 months were virtually u n a v a i l able. Now, according to Federal Reserve Board estimates, nearly one out of five loans is for more t h a n t h r e e years. The buyers pay more in interest in exchange for the longer loan. CHRYSLER Corp. says half the contracts issued by its auto credit subsidiary in 1975 were for 42 or 48 months. Ford says the average length of its contracts was 38 months last year. And General Motors says Hi per cent of its loans last year were for m o r e t h a n Si months, cbmpared with 4 per cent in 1974. ; C h a r l c s U u e k e l l , an economist with the Federal Reserve Board, says the, average new-car loan fr/m a finance company iriil975was for £1,100 at IS percent arinual interest. ', A consumer who paid offlthc loan in 30 months wmild have monthly payments of $161 for a total cjcpenditure of $4,830. ' A consumer who paid otf the loan in '18 months Would have monthly pay- rpcnts of $10!) for a total expenditure of $5,232. The longer loan would cost an eMra $402. * Lucked says t h e average contract length last year was 37.6 months with a' m o n t h l y payment of $132. Total cost for the $)1,IOO l o a n a v e r a g e d $4,960, with f i n a n c e c h a r g e s accounting for $SfiO, or 2! per cent of the original loan. BY CONTRAST, the average loan in 1972 was for W.100 at 12 per cent a n n u a l i n t e r e s t . The length of the contract was 35 months with a monthly payment of $105.40. The total cost for the loan was $3,689, including $589 in finance charges -- equal to 19 per cent of the original loan. Lucketl says c o m m e r - cial hanks, which account for more than 75 per cent of all new car loans, also have (jnUcn iiito extended financing, although w i t h less relish than finance companies. He says 14 per cent of new-car bank loans were for more than 3( months last year, compared with 9 per cent in 1974 and virtually none four years ago. The explanation for the growth of long-term loans apparently can be s u m med up in one word -inflation. "As far as we're concerned, higher prices are the sole reason," says .lames Madden, vice president of Chrysler Financial C o r p . , t h e aulomakcr's credit arm. New-car p r i c e s h a v e shot up more than $1,200 on the average since 1973. Those boosts, in turn, have m e a n t s h a r p l y h i g h e r monthly payments, which, officials c o n c e d e , h a v e d r i v e n m a n y potential buyers out of the market. "Url's face i t , a guy who went shopping for a car for the first lime in three or four years and saw the sticker on a 1975 car had to be shocked," commented one industry a n a l y s t . "Ixmgor-term loans cut the monthly payment to something Ihe guy can afford." Lucked says the slart of the boom in extended financing can be traced to the t a l l of 1974, w h e n record introductory price increases averaging nearly $500 went into effect on 1975 model cars. Most finance companies are limiting the length of new-car loan contracts to 48 months, although some isolated cases of 60-month financing have surfaced in the p a s t year, Luckctt says. Long-term loans h a v e advantages and disadvantages for both the consumer and the auto companies. W h i l e a stretched-out loan m e a n s a smaller monthly payment for the consumer, it also means higher finance charges. A spokesman at Ford Motor Credit Co. estimates a buyer pays an additional $1 in interest charges per month for extending a contract from three years to 42 months. For 48-month terms, the added charge is $2 monthly. The consumer incurs a further loss due to the declining trade-in value of his car while he's paying off the loan. For Ihe auto companies, which suffered through a two-year sales drought, extended finance t e r m s make it easier to sell cars. But the industry may only be stealing sales from the future. "Our fear is that a 48- month contract may keep a buyer out of the market a year longer than if he had a 36-month loan," explains an official at one Big Three finance company. "There are a lot of people who won't shop for a new car until they've paid off the old one." However, the extended- financing concept is loo new to test that argument, mnd officials say it will be several years before they can measure the effect. General Motors Acceptance Corp. has been less enthusiastic than its counterparts at Chrysler and Ford to extend credit beyond 36 months. " I t ' s sound financial policy for a consumer to pay off the balance as soon as possible," explains a G M A C official. B u t , he a d d s , GMAC has been forced to make 42- or 48-month financing available because of " c o m p e t i t i v e pressures." Any time we share a we're sure i to enjoy it more. ! Mazda charged with fehady ad practices ·SACRAMENTO (fl - · The DMV Tuesday filed charges of false and mis- l e a d i n g a d v e r t i s i n g against Mazda Motors of America, inc. jTlie suit also s a y s Mazda advertises 42 miles .% gallon, b u t cars with California's stricter smog dcvjces rate only 37 miles a gallon. A Mav.da spokesman in Cnmplnn said he couldn't immediately comment. The D M V said that, after a similar suit earlier, General Motors changed its ads. BIXBY KNOLLS Wed. Mor. 17 Thur. Mar. 18 BELMONT STORE Frl. Mar. 19 Sat. Mar. 20 get a beautiful 8"xlO" Living Color only^J Tf Gl Portrait * * t \ Compara At $6.95 * B.itm".-- cril*i-n-.id./!t5-- O'ci'jTj -- i £:· (H.-SOO Oixrt5 ··): ff' po'Mxi * SCH.-CI horn linisltM co-o- {xxlr.rls-ii * I ili«. yc i S 10. 5 ' » we,. * li.^rt-- o-to Spcc-Jl po' c" J ^ ( jsi dis-wnr-- cou-tt-ooi ffMc £ pen en up Our-] f' m i n VV.iuH * feorwK Cilnen* Invited K--! co'or Bui wilh No One to · you 10 buy. I Itudi* Houn: 10 A.M. to 1 F.M., 1 P.M. 1° 6 P.M. FrUiy t» 7:10 M«.-S«1"r««)r '· "° '·**· BELMONT JTCHU J. Rxdondo Whirlpool AUTOMATIC WASHER · 3-Wash Rinse Temp. · Normal, Gentle, Perm. Press Knit Cycles 9 18 Lb. Capacity Dooley's Reg. 278.88 SALE PRICE 258 \Vhirlpool GAS DRYER Dooley's Reg. 238.88 218 M SALE PRICE Features Custom Dry Control · No-Iron, Perm. 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