| Loan terms are on the rise for both new and used vehicles, according to a report released today from Experian Automotive.
According to Experian’s State of the Automotive Finance Market report, average loan terms for both new and used vehicles ticked up a month, reaching new all-time highs of 67 and 62 months, respectively.
Furthermore, longer loans, those lasting between 73 and 84 months, accounted for 29.5 percent of all new vehicles financed, representing a year-over-year increase of 18.6 percent. That is the highest percentage on record since 2006, when Experian began tracking the data.
Long-term used car loans also reached a record high, with loan terms between 73 and 84 months rising to 16 percent in the first quarter, compared with 12.94 percent in the year-ago period.
Increasing auto loan terms are a source of worry for some industry observers, who may view this as an omen of a coming subprime auto loan bubble, but Experian sought to reassure cynics in a statement announcing the report’s findings.
“While longer term loans are growing, they do not necessarily represent an ominous sign for the market,” Melinda Zabritski, Experian’s senior director of automotive finance, 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. However, 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.”
Experian said the average amount financed and the average monthly payments for new vehicle loans also increased to record highs. The average new vehicle loan in the first quarter was $28,711, compared with $27,612 a year ago, and the average monthly payment increased year-over-year to $488 from $474.
The average credit score for new vehicle loans dropped slightly, from 714 last year to 713 this year, while the average credit score for used car loans inched upward, to 643 from 641 last year.
The average used vehicle loan increased to $18,213 from $17,927 last year, and the average interest rates for both new and used vehicle loans increased year-over-year, from 4.54 percent to 4.71 percent for new cars and from 9.01 percent to 9.17 percent for used cars.
