Auto Loan Terms Reach All-Time High, According to Experian Automotive | Edmunds

Auto Loan Terms Reach All-Time High, According to Experian Automotive

SCHAUMBURG, Illinois — Loan terms for both new and used cars have grown to record length, according to Experian Automotive.

The latest State of the Automotive Finance Market report found that the average loan terms for new and used vehicles have reached all-time highs of 67 and 62 months, respectively.

In addition, according to Experian, longer loans — those with terms lasting 73-84 months — accounted for a record-setting 29.5 percent of all new vehicles financed. That's an 18.6 percent increase from this time last year and the largest percentage since the financial information firm began releasing this data in 2006.

"While longer-term loans are growing, they do not necessarily represent an ominous sign for the market," explained Melinda Zabritski, Experian's senior director of automotive finance, in a statement. "Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank."

However, Zabritski cautioned, "it is critical for consumers to understand that if they take a long-term loan, they need to keep the car longer or could face negative equity should they choose to trade it in after only a few years."

As previously reported by Edmunds, the average age of vehicles on the road in the U.S. has reached a record high of 11.4 years, due in part to increased reliability, so Americans may feel that longer-term financing is justified.

In addition to the increase in term length, Experian found that amounts financed and monthly payments have also soared to record highs. According to the report, the average loan for a new vehicle is now $28,711, compared to $27,612 at this time in 2014. And the average monthly payment rose, year over year, from $474 to $488.

The report also notes that banks and other lenders are making credit more widely available, with the average credit score for a new-vehicle buyer dropping slightly from 714 last year to 713 in the first quarter of 2015. And the fact that the average interest rate rose from 4.54 percent to 4.71 percent in that same time frame hasn't deterred consumers from getting the vehicles they want.

As recently noted by Edmunds, models like the 2015 Chevrolet Colorado, Chrysler 200 and Ford Mustang were sales leaders in May, with General Motors, Volkswagen and Fiat-Chrysler reporting significant gains over this time last year.

"Increases in vehicle financing are signs of a strong automotive market," concluded Zabritski. "By gaining a deeper understanding of current financing trends, lenders are able to stay competitive and better meet the needs of the marketplace, while consumers can use the data to become more educated on the different vehicle financing options and make a more informed purchasing decision."

Edmunds says: Buyers now have not only a wide choice of vehicles to choose from, but also a variety of financing options to meet their needs.

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