There is good news and bad news when it comes to car loans. Most people like the good news first, so here it is: Americans are borrowing money for vehicles like never before. In fact, new loans for cars and light trucks (both new and pre-owned) just surpassed $1 trillion for the first time.
Now for the not-so-good news: because many of these customers are coming to car dealerships with less cash – and possibly even less credit history – they often end up with a higher loan and, most notably, one with a longer term.
Stats for Car Loans
According to recently released numbers compiled by Experian, car loans spanning 73 to 84 months (or specifically, up to seven years), increased to a record number of 29.5% of cars and light trucks financed over the first quarter of this year.
As you would expect, this trend has increased the overall average of today’s car loan. The current average for new car loans has jumped to 67 months (about five-and-a-half years) … while pre-owned car loans rose to 62 months – still more than five years. Both these figures were up a full month from just one year earlier.
Predictably, the average new car loan during the first quarter of 2015 was also up. Experian’s figure of $28,711 increased about $1,000 from the same time period last year. The average monthly payment climbed $14, from $474 to $488.
These longer-term loans actually led Honda Executive Vice President John Mendel to quip, “I don’t know how long the average marriage lasts in the U.S. today. It might be less than the average car loan.”
While the advancements in technology and safety (and the resulting demand for these features) have also played a part in the escalating numbers, the bottom line is that many consumers just don’t have much disposable income – but they still want the amenities and excitement of driving a new car.
So what happens next? There are two very big questions still to be answered. (1) Will these longer loans make people keep cars longer and thus slow future sales; and (2) How will the inevitable interest rate hike (you know it will happen sooner or later) influence this trend?
We’re all eagerly waiting to find out.
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