It is no secret that auto loan terms are on the rise. More and more, lenders are pushing maturity dates to seven and sometimes eight years into the future. The fascinating ramifications of this have captivated researchers including Visible Equity’s Chief Economist, Dr. Taylor Nadauld, who has extensively studied the economics of auto lending. One of his recent studies explores the effect that longer terms have on the amount consumers are willing to spend on cars. With lower monthly payments spread over a longer period, it seems that car buyers feel they can afford “more.”
How does this trend affect lenders? On one hand, interest income may increase as borrowers spend more on their cars. However, credit risk may also increase as LTVs might also be negatively affected. Principal will decrease at a lower rate relative to the value of the vehicle, exposing the institution to a higher loss given default (LGD) over a longer period of time. It therefore becomes more important for lenders to consider the rate at which different auto makes and models depreciate.
We dug into our treasure trove of auto loan data to answer this question and came out with an interesting metric: auto half-life. Here, “life” isn’t referring to the lifetime of the vehicle itself but the lifetime of the value of the vehicle. In other words, auto half-life represents the time it takes for the car’s value to cut in half. To give you a point of reference, the half-life of a Honda Civic is 5.69 years. If you paid $20,000 for the car, then in five years and eight months, you could expect to sell the car for $10,000 on average. Another five years and eight months later you could sell for $5,000.
So which cars have the best and worst half-lives? We sorted through all 820 models and picked 18 common models with a full range of half-lives.
|Make & Model||MSRP||Half-life|
|Chevrolet Silverado 3500HD||$40,100||11.3 years|
|Subaru WRX||$27,195||8.8 years|
|Toyota Tacoma||$25,550||8.2 years|
|Dodge Challenger||$27,595||7.8 years|
|Subaru Impreza||$18,595||7.5 years|
|Honda Fit||$16,190||7.1 years|
|Toyota Corolla||$18,700||6.9 years|
|Audi SQ5||$52,400||6.6 years|
|Nissan Sentra||$17,790||6.0 years|
|Ford Focus ST||$25,170||5.8 years|
|Volkswagen Tiguan||$24,195||5.6 years|
|Acura RDX||$37,300||5.3 years|
|Hyundai Elantra||$17,100||5.0 years|
|Buick Enclave||$40,000||4.6 years|
|Honda Odyssey||$30,090||4.3 years|
|Chevrolet Sonic||$15,420||3.8 years|
|Land Rover Range Rover||$88,860||3.7 years|
|Nissan Leaf||$29,990||2.4 years|