New Vehicle Loans Continue to Get Longer
New vehicle loans are being stretched more and more as time goes by. According to a recent report in the Detroit News, the average new vehicle loan is now for more than five years – a big departure from days gone by when most car loans were either four or five years.
Today, there are car loans for six and seven years – and a few for even longer periods than that. This, of course, is part of the reason the automotive industry continues its recovery. The article cites an example of how these extended loans give the consumer additional buying power. A 2015 Ford Fiesta SE hatchback (with 10 percent down and 1.9 percent financing) can be had for around $320 per month on a four-year loan. But a much larger vehicle, the midsize 2015 Fusion SE, is just $38 more per month when financed for 4.9 percent over six years.
Currently, almost a quarter of all new vehicle loans are for longer than six years – and it isn’t completely uncommon to see dealers offer their customers 96-month financing. That’s eight years to pay for their car!
Might New Vehicle Loans Negatively Affect the Future?
Adam Jonas, an auto analyst from Morgan Stanley, was quoted in the article as saying these lengthier car loans are “borrowing demand for the future.” It’s for this exact reason that some automakers, such as Honda, have no plan to resort to these 72-month loans.
Experian’s recently released stats mirror those in the Detroit News article. Their data shows new vehicle loans are currently going for 73-84 months on average – which is a whopping 27% increase from the first quarter of last year. The average amount financed in the first quarter of 2014 was $27,612, up nearly $1,000 from the same time period in 2013.
(Note: According to Bankrate.com, the financial information Website, the average rate on a 60-month new car loan is currently 3.18 percent. )
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