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2015 Kia Optima.

Kia

Canadians are stretching out their vehicle loan payments to record lengths, driving down their monthly payments and driving up sales, also to record numbers.

Sixty-nine per cent of Canadians who used financing to buy a new vehicle took out a loan of 72 months or longer in September, says J.D. Power and Associates' Power Information Network. That's staggering, twice the average term of a car loan 10-12 years ago, says Michael Hatch, chief economist for the Canadian Automobile Dealers Association (CADA).

"The monthly payment is king. The trend is toward longer loan terms, although we may be bouncing up against the limit of longer amortization," Hatch says. So while we're seeing a serious surge in long-term car loans, 84 or 96 months may be the limit.

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How do we explain a loan term phenomenon that's in part the reason light vehicle sales are up 5.5 per cent over last year, itself a record year? Why will Canadians buy in excess of 1.8 million new vehicles this year? Why was September the sixth consecutive month of record sales? Why have new vehicle sales outpaced general economic growth since the recession?

Long loan terms and lower monthly payments are part of the story.

"And cars are lasting longer and that is another explanation for why consumers are taking out debt over a longer period of amortization – a function of the longer-lasting vehicles and the insatiable desire for the lowest possible monthly payment," says Hatch. "It boils down to a fantastic time for consumers, who are responding."

Hatch says dealers are not concerned about this surge in extended loans. Dealers are not seeing an inordinate number of loan defaults, he says. Ditto with respect to the number of customers who find themselves upside down – the value of the remaining loan exceeds the value of the vehicle itself. And improved vehicle quality means used car prices are reasonably strong, which gives buyers equity at trade-in time. In other words, "Canadians usually have skin in the game" when the time comes to buy a new ride, he says.

Still, long loan terms do have a dramatic impact on monthly payments. As an analysis by unhaggle.com reveals, in one instance the monthly payment on a 2015 Audi A4 sedan drops almost in half when the term stretches from 48 to 84 months. At the 2.9 per cent factory rate for 48 months, the monthly payment comes in at $1,120, while at 84 months, the buyer pays $668 a month.

Or consider a 2015 Kia Optima. Unhaggle's numbers show a $779 monthly payment (zero per cent) at 48 months, while at 84 months (1.49 per cent) the payment plunges to $469. Similarly, a 2015 Sonata at 48 months (zero per cent) costs $783 per month, while at 84 months (1.99 per cent) the payment falls to $480.

A 2015 Honda Pilot at 48 months (1.49 per cent) comes in at $1,154, but at 84 months the payment is $710. Even a 2015 Jeep Patriot with a loan rate of 3.99 per cent, goes for $710 a month over 48 months, but $430 a month at 84 months.

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Despite the incentives, Hatch says Canadians remain careful and demanding. To buy, Canadians insist on the right mix of product features and specifications and only sign up for a vehicle that first and foremost fits their lifestyle. Once those things are in place, Canadians demand that the payment "must fit the budget" or it's no deal even if it's a good deal.

"Our dealers …Their customers know what they want, what they are willing to pay and they need only go next door (to another dealer) if they don't get what they want," says Hatch.

Deals of the Week consulted with unhaggle.com, Car Help Canada, carcostcanada.com, and other sources on these offers. As usual, pricing information here is subject to change and dealer discounts vary, so consult your dealer for all the final details, including expiry dates for all offers.

2015 Kia Optima. Kia Kia  

2015 Kia Optima four-door sedan automatic SX

  • MSRP: $33,195
  • Freight, dealer prep, air conditioning tax: $1,620
  • Dealer discount (estimated): $1,200
  • Factory discount: $3,000 (manufacturer incentive)
  • Taxable subtotal: $30,615
  • Total price with 13 per cent HST: $34,594.95

A $500 cash incentive is available with a financing rate of zero per cent for 48 or 60 months, or 1.49 per cent for 84 months. A $500 incentive can also be combined with a 1.9 per cent lease rate for 48 months.

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2015 Audi A4. Audi Audi  

2015 Audi A4 four-door sedan automatic Technik quattro

  • MSRP: $47,800
  • Freight, dealer prep, fees and air conditioning tax: $2,230
  • Dealer discount (estimated): $2,450
  • Factory discount: $2,500
  • Factory discount: $1,200 (loyalty rebate)
  • Taxable subtotal: $43,880
  • Total price with 13 per cent HST: $49,584.40

A $1,500 and factory incentive and the $1,200 loyalty incentive are available with 2.9 per cent financing for 48, 60 or 84 months. The same incentives are also available with a lease rate of 3.9 per cent for 48 months.

2015 Honda Pilot. Honda  

2015 Honda Pilot 4WD Touring

  • MSRP: $48,850
  • Freight, dealer prep, AC tax: $1,830
  • Dealer discount (estimated): $3,100
  • Factory discount: $3,000 (manufacturer incentive)
  • Taxable subtotal: $44,580
  • Total price with 13 per cent HST: $50,375.40

The factory incentive is not available with a 1.49 per cent finance rate for 48 months, 1.99 per cent for 60 months or 2.99 per cent for 60 months – or a lease rate of 1.99 per cent for 48 months.

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2015 Jeep Patriot. Fiat Chrysler Fiat Chrysler  

2015 Jeep Patriot 4WD four-door Limited

  • MSRP: $28,795
  • Freight, PDI, AC tax: $1,830
  • Dealer discount (estimated): $1,250
  • Factory discount: $1,500 (manufacturer incentive)
  • Taxable subtotal: $27,875
  • Total price with 13 per cent HST: $31,498.75

Factory incentives are available with 3.99 per cent financing for 48, 60 or 84 months.

Pricing information source: unhaggle.com and carcostcanada.com. Calculations based on Ontario customers. Please note that while the information above is accurate at the time of publication, incentives are given at the discretion of individual dealers, and may be changed or discontinued at any time. Where noted, "dealer discounts" are negotiated with the customer on a case-by-case basis. Unhaggle Savings are actual discounts received by Unhaggle customers.

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