Car buyers may be tempted to take out a long-term auto loan to push their monthly payments into more affordable territory. But according to a report from CarsDirect on Tuesday, Nissan dealers have a very good reason to steer buyers into longer-term loans: money.
According to a letter Nissan sent its dealers in the US, they can make a dealer fee of 1% on the total amount financed, if salespeople can land a customer with promotional financing. Right now, dealers earn a flat $150, but take 1% on a $30,000 car and a dealer can bring home double the amount on a single deal. For an 84-month loan, dealers can make up to $450 on the sale without sliding a customer into a promotional rate. The incentive is real, folks.
In a statement, Nissan told Roadshow, "Nissan Motor Acceptance Company, in conjunction with Nissan retailers, provides a variety of financing options to best suit our customers' needs. Captive finance companies offer dealer compensation as standard practice across the industry. NMAC recently communicated a dealer program aimed at supporting our dealers and customers. It is designed to drive participation in promotional rate contracts, which benefit a customer with lower rates, payment and interest."
To be fair, this practice is probably more common than those of us on the other side of the sales desk realize. While there are benefits to a long-term auto loan, the biggest downside is a whopping amount of interest paid over the lifetime of the loan, especially if a buyer doesn't qualify for a low interest rate.
These types of loans, however, are becomingto make more affordable. New data from TrueCar at the end of March showed the number of Americans who financed a car for 84 months grew by 13% since February 2020. Further, the share of auto loans with terms longer than 73 months grew to 30% as of March 2020.