Warning. Long-term car loans may be bad for the economy, car companies and car buyers. General Motors Co.’s (NYSE: GM) Chevy may have missed the point. It is offering virtually its entire line of 2016 models for 0% APR for 72 months.

The Chevy offers is good for 72 hours on the Labor Day weekend, a very old way to clear everything from appliances to clothing. There is no guarantee Chevy will not make the same offers for Columbus Day, if it has a large inventory of 2016 models left

The offer is only for “qualified buyers”. It vaguely define who those are in very fine print:

Monthly payment is $13.89 for every $1,000 you finance. Example down payment: 7.8%. Must finance through GM Financial. Excludes L trims. Some customers will not qualify. Not available with some other offers. Take delivery by 9/9/16. See dealer for details.

There is a credit score estimator

Chevy and its dealers almost certainly want to clear out 2016 models before 2017 models arrive, and in some cases, they already have. A lot of 2016 cars which tend to be less expensive than 2017 models begs the question for consumers of why to spend more money.

Even with qualified buyers, there is a credit risk problem. Over 72 months, a car or truck can lose over 70% of its value. The buyers are left paying for a car which almost certain needs, or will need, a series of repairs, and may well need more. GM Financial risk is sized in the “outer years”, although it lays off some of the risk

Among the most critical concerns regarding long-term auto loans is the sub-prime versions of these will default. It is an observation supported by facts. Presumably GM screens out many of these people with credit checks. However, the number of 72 month loans has ballooned. And, they are, without question, riskier than loans which have more traditional durations. In other words, the level of defaults is bound to be higher

0% APR For 72 Months sells cars, but must, by its nature, increase risk

 

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