Auto finance companies in the U.S. are switching to longer-term car loans, in an attempt to downsize their involvement in the leasing business.

Long term auto finance loans have a slower repayment of principal, as well as increase the risk of losses resulting from defaults in payments. Leasing companies in the auto finance industry also have to cushion themselves with reserve funds to make up for possible losses from these car loans.

These kinds of car loans now stretch as long as 7 years or 84 months. GM, Ford and Chrysler LLC, consider long term auto loans as a way of shedding heavy inventories. Soaring fuel prices have caused a catalytic decline in consumer’s confidence and have hit the fortunes of auto makers, who are now faced with plunging sales especially in the pickup trucks and sport-utility segments.

Long term car loans such as 72 or 84 months, can reduce monthly payments for buyers, putting them on par with payments under leasing agreements. However long term car financing heightens the risk factor of defaults, as the unpaid principal would be higher than that of a short-term loan. Auto financing companies need to factor the loss perspective into the prices charged to customers who avail such loans. Visit 5minuteautoloan.com for more auto finance tips.