Americans love cars and debt, so it’s only natural that they would combine the two. A new report finds that auto loans are becoming more supercharged than ever as financing terms reach record highs. However, consumers should remember to steer clear of buying more car than they can really afford.
The average auto-loan term increased to 66 months during the first quarter, according to Experian Automotive, a global information services company. That is the highest level since Experian began publicly reporting the data in 2006.
Making matters worse, nearly 25% of all new vehicle loans originated during the quarter had terms extending out 73 months to 84 months, representing a 27.6% surge from a year earlier. The average amount financed for a new vehicle loan also reached an all time high of $27,612.
“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,” said Melinda Zabritski, Experian Automotive’s senior director of automotive credit. “The benefit of a longer-term loan is the lower monthly payment; however, the flip side of that is consumers can find themselves paying more in interest or being upside-down on their loan if they seek to trade their vehicle in early. It is definitely a choice that consumers will want to weigh carefully before making a final purchasing decision.”
The average monthly payment for a new vehicle loan hit a record high of $474 in the first-quarter, driving more buyers to leases. Of all new vehicles financed, 30.2% were leased compared to 27.5% a year earlier.
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