As new cars and used cars become increasingly more expensive, buyers are taking out longer-term loans with higher monthly payments, according to a new report from Experian for the Q1 2015 timeframe.
For instance, customers spent an average of $28,711 for a new-vehicle loan, up $1,099 compared to the $27,612 from Q1 2014. Used vehicle loan amounts grew $286 to $18,213 from $17,927 Q1 2014.
Loan Duration And Payments On The Rise
The report states that the average new loan term has grown to an all-time high of 67 months, or 5 years and 7 months.
By association, payments just keep growing. The average monthly payment inched up from $474 to $488 in the first quarter.
Longer Duration Loans Grow In Popularity
While regular loans post a slight increase in length, some consumers are seeking even longer-term loans that last between 73 and 84 months.
Those loans account for 29.5 percent of all new vehicles financed in the first quarter of 2015, up 18.6 percent from the same time period in 2014.
Used Car Loan Duration Also On The Rise
Loans on used cars are also growing in length, with the average loan growing to 62 months.
Not An Ominous Sign
Experian’s senior director of automotive finance, Melinda Zabritski, says that the increases in loan duration and monthly payments aren’t necessarily a looming sign of trouble.
“While longer-term loans are growing, they do not necessarily represent an ominous sign for the market,” said Zabritski in a recent 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.”
Leases Grow While Lease Payments Fall
Lease popularity has grown to 31.4 percent of all new car purchases. And the only decrease in the report is that the average lease payment dropped $7 to $405 from $412 in Q1 2014.
Credit has also become more available, as the average new vehicle lessee had a score of 718.
A Strong Automotive Market, But…
Experian’s analysis says that the gains seen here are “signs of a strong automotive market,” while cautioning against certain risks.
“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,” said Zabritski.
As such, we’d recommend that those purchasing a new or used car today truly like the vehicle, as getting out of it before the end of the loan or lease could be more expensive that before.