Auto loan lengths have reached an all-time high due to consumer desire for more expensive and better-equipped vehicles, according to the latest Edmunds analysis of financing data.
Edmunds analysts found that the average loan term for new vehicles soared to a record high of 69.3 months in June, an increase of 1 percent from June 2016 and up 6.8 percent from five years ago. In addition, the average amount financed by new-car buyers jumped to $30,945, which is a 2.6 percent increase from this time last year and 17.2 percent more than five years ago. And the average monthly car payment is now $517: That's 2.1 percent more than in June 2016 and an 11.3 percent increase over five years.
The reason for these longer loans and higher payments: Shoppers are looking beyond entry-level models, and many are opting for more expensive crossovers and SUVs. Also, they want their cars outfitted with many of the latest comfort, convenience and safety features.
"Stretching out loan terms to secure a monthly payment they're comfortable with is becoming buyers' go-to way to get the cars they want, equipped the way they want them," said Jessica Caldwell, executive director of industry analysis for Edmunds. "It's financially risky, leaving borrowers exposed to being upside down on their vehicles for a large chunk of their loans, but it's also a sign that consumers are still confident enough in the economy to spend more on their vehicles and commit to paying for them longer."
Consumers in the market for a used vehicle are also willing to stretch their payments. An Edmunds analysis found that the average loan length for a used car is now 66.9 months, up 0.1 percent from June 2016 and up 6 percent than five years ago. The average amount financed has risen to $21,142, a 0.4 percent jump from last year and an increase of 9.9 percent over five years. And the average used-car payment in June was $383, which is 0.8 percent more than a year ago and up 3.5 percent from five years ago.
Down payments also are on the rise. As previously reported by Edmunds, new-car down payments recently hit a near-record high, and this latest analysis reveals that buyers are putting down an average of $3,687. That's 6.6 percent more than in June 2016 and 11.7 percent more than five years ago. And, again, this willingness to raid the piggy bank to get the car they want shows that consumers are demonstrating faith in the economy while trying to keep monthly payments from getting out of hand.
"In our increasingly credit-based culture, where consumers are willing to finance everything from cellphones to vacations, more money up front shows car buyers aren't completely sacrificing practicality in order to get the cars they really want," Caldwell said.
More insight into recent auto industry trends can be found in the Edmunds Industry Center.