Purchasing a new or used vehicle can represent quite a commitment for consumers, especially as the length of an average vehicle loan continue to get longer, now reaching all-time highs.
In fact, the average loan terms for new and used vehicles span 67 and 62 months, respectively, according to the latest State of the Automotive Finance Market report from credit reporting agency Experian.
The terms for both types of loans increased by one month in the first quarter of 2015, representing the longest length since Experian Automotive began tracking the terms nearly nine years ago.
In all, the report found that even longer loans – those with terms lasting 73 to 84 months – are on the rise, with 29.5% of all new vehicles financed with such terms. Long-term used vehicle loans for the same duration represented 16% of that market.
“While longer term loans are growing, they do not necessarily represent an ominous sign for the market,” Melinda Zabritski, senior director of automotive finance for Experian, said 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.”
Still, people undertaking such a long loan should be aware of other drawbacks, including the fact that they need to keep the car longer or face negative equity, Experian points out. The average age of cars on the road in the U.S. is 11 years.
The report also found other upward trends in the new and used car loan markets, with the average amount financed for both types of vehicles increasing.
A new vehicle loan for the first part of 2015 clocked in at $28,711, nearly $1,000 more than the same time in 2014. Used cars saw a more subtle increase in average cost with an increase to $18,213 in 2015 from $17,927 in 2014.
According to the report, it appears that more and more people are turning away from buying a vehicle outright, instead turning to a leasing option.
Leases accounted for about 31.5% of new vehicles financed in the first quarter of 2015, an increase of 1.3% from the previous year.
At the same time, the average monthly payment for a leased vehicle decreased to $405 from $412.
Auto loan terms reach all-time highs [Experian]
by Ashlee Kieler via Consumerist