July 4, 2017
Car buyers stretch loan payments to record lengths to get in pricier vehicles
As car buyers’ obsession with bigger, pricier vehicles grows, so does their willingness to take longer to pay for them, says new analysis from Edmunds.com.
The average auto-loan length reached an all-time high of 69.3 months in June. That’s 6.8% longer than five years ago, said the site that provides auto industry statistics and news.
The average amount that buyers financed was hit with the biggest uptick for the year last month, at $30,945, or up $631 from May. The financing trend also lead to the highest monthly payments for the year, now averaging $517, which increased from $510 in May.
“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, Edmunds executive director of industry analysis.
Of course car depreciation can mean that borrowers find themselves in an upside-down loan pretty quickly.
“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,” Caldwell added.
Financial terms, including still-low, though rising, prevailing interest rates are adding to loan demand. Edmunds found that the annual percentage rate dipped just below 5% in June for the first time since February. Still, the APR has increased 5.7% from a year ago and 13.6% from five years ago.