Americans Are Taking Longer, Costlier Loans to Purchase Cars
October 2, 2019
The growth of income has not kept pace with the increasing cost of most cars. In an effort to purchase ever more expensive cars, while maintaining the illusion of affordability by keeping monthly payments low, consumers are taking out auto loans with longer terms. In the first half of 2019, nearly one-third of auto loans for new vehicles had terms longer than six years, according to credit firm Experian. That number was less than 10 percent just a decade ago.
In that same period, the size of the average loan has increased by more than a third to $32,119, according to data from Experian. To keep monthly payments affordable, borrowers are adding more months to their loans. The average length of an auto loan today is 69 months. So many months are added that the terms of a loan often outlast the car. Today about one-third of buyers purchase a new car while they still owe on the previous, often trading in their vehicle and rolling the existing debt into the new loan, according to auto retailer Edmunds.
This means that Americans are carrying more auto debt than ever before. Consumers held a record-high $1.3 trillion in auto debt, according to data from the Federal Reserve. This is up from $740 billion in 2009.