Volvo to Offer 10-Year Loans to Car Buyers

To help car buyers reduce monthly payments, lenders a few years ago introduced four-year auto loans. Then five-year loans. Then six.

But a 10-year car loan?

Volvo Cars of North America announced Thursday that customers will be able to finance new Volvos with loans through New York’s Chase Manhattan Bank for as long as 10 years--by far the longest maturity ever offered by a major U.S. lender.

Some lenders currently stretch out payments as long as six years, but two to four years is far more common. Lenders generally are leery of long-term loans on assets such as cars that depreciate in value.

Volvo and Chase Manhattan officials said the unusual loan will be offered in order to make the cars affordable for those unable to make the monthly payments on a short-term loan. For example, the monthly payment on a 10-year, $10,000 loan at an 11% annual interest rate comes out to about $137.75 a month, down from $217.42 for a five-year loan at the same rate. Interest payments over the life of the loans, however, are more than double for the 10-year loan.

Actual payments for Volvos may be larger, as list prices on the Swedish cars range from $16,500 to $37,800 on current models, said Volvo product information manager Fred Hammond.

But will buyers walk away from the 10-year loans if their Volvos don’t last that long?

“It is conceivable that with a loan this long the car might retire before the loan has,” Joel Epstein, a Chase senior vice president, said in a statement. “But our experience with Volvo cars and customers has been so positive we are confident this program will be successful.”

Competitors, however, aren’t so sure the loan will be popular with borrowers because of the high cumulative interest payments, or to lenders because of the risk that the cars won’t last as long as the loans.

“I just don’t see it,” said John Andrews, spokesman for General Motors Acceptance Corp., the nation’s largest auto lender. “The feeling here is very strong that we should resist it . . . consumers should try to pay off auto loans as fast as they can.”