Will Long Auto Loans Have Long-Term Impact on Auto Industry?

Long Auto LoansLong auto loans are becoming the norm, but so far this does not seem to be a chief concern among automotive dealers. Despite personal incomes not going up much, the average transaction price for a vehicle is rising (typical amount financed is an all-time high of $27,612) … and sales volume is going up, too.

Something has to give, and the end result has been long auto loans that span as many as 84 months. By extending the loan terms, the monthly payments become more manageable – a great thing today for both consumer and dealer. But what about tomorrow

Industry Experts Weigh In

Some experts are predicting that long auto loans will have a detrimental impact upon automobile sales in the coming years. They believe these extended terms could cause a slowdown in sales, because customers will be tied to their cars for longer periods of time and, as such, would be unwilling to shop for another vehicle until their current car is paid off. They also say that the residual effect could be the saturation of the used-car market with high-mileage vehicles (because the original owner would drive their car for a longer period of time prior to trade-in).

However, most prognosticators say we shouldn’t worry. First, the used-car market is now stronger than ever among new-car dealers; and second, automakers are reeling in some of the incentives they once passed out far more liberally. In addition, many feel an additional 12 months on the back end of a car loan won’t make that much of a difference.

Long Auto Loans Statistics

But the stats don’t lie: According to Experian Automotive, these long auto loans continue getting longer each year. Through the first quarter of 2014, the average new-car loan was 66 months. Last year it was 65 months; in 2012 it was 64; in 2011 it was 63. In the first quarter of this year, two-thirds of new-car loans spanned more than five years. Despite the longer loans, the average monthly payment was at an all-time high of $474.

In Q1 2014, Experian’s data reveals loans ranging from 73 to 84 months increased by an amazing 28 percent – and they made up a quarter of all new-car loans during that time period. It’s as if 72 months has become the “new normal.”