Auto Buyers Set New Records, Load Up On Longer Loans

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Steven Senne/AP
By Phil LeBeau | @Lebeaucarnews

In the latest sign Americans are increasingly comfortable taking on more debt, auto buyers borrowed a record amount in the first quarter with the average monthly payment climbing to an all-time high of $474.

Not only that, buyers also continued to spread payments out over a longer period of time, with 24.8 percent of auto loans now coming with payment terms between six and seven years according to a new report from Experian Automotive.

That's the highest percentage of 6 and 7-year loans Experian has ever recorded in a quarter.

"I'm not surprised consumers are borrowing more or taking out longer auto loans," said Melinda Zabritski of Experian Automotive. "With relatively low interest rates, buyers are more comfortable taking out longer loans so they can keep their monthly payment as low as possible."

Experian (EXPR), analyzed approximately 4.7 million new and used auto loans written between January and March.

Those loans totaled $100.7 billion, a record amount for auto loans written in any quarter in the U.S. The average length of auto loans increased by one month to five and half years, a new all-time high, it said.

"Consumers are really relying on financing as the price of new vehicles continues to move higher," said Zabritski.

In the first quarter, the average auto loan jumped $964 to $27,612, an all-time high, according to Experian. Just five years ago, the average auto loan was $24,174.

Longer Loans, Owning Cars Longer

One reason almost one out of every four auto buyers took out a loan with repayment terms between six to seven years is because they're holding on to their vehicles longer.

IHS Automotive says the average American is holding on to their new vehicle for six years and one month. A decade ago, the average length of ownership was four years and two months.

"The days of buying a new car every three to five years are gone," says Mark Seng with IHS Automotive. "With vehicles lasting longer and having more technology, buyers are clearly willing to own their cars six or seven years, often longer."

The one risk for buyers taking out seven-year auto loans is the chance they'll be "upside down" and owe more than their vehicle is worth if they try to sell it before the loan is paid off.

"With a seven-year loan, you really need to pay off at least five or five and half years to avoid having negative equity with the vehicle," says Zabritski.

Leasing Taking Off

As new vehicle prices have edged higher, a growing number of consumers have decided to not take out an auto loan with an average monthly payment of almost $500. Instead, they are leasing vehicles and locking in lower monthly payments for three or four years.

"Our leasing business is up 20 percent this month," said Dave Fisher, Chairman and CEO of the Suburban Dealership Group in the Detroit metropolitan area. "People are turning to leasing because it makes more sense than taking out a loan, especially for premium models."

Even for mass market models, the difference in the average monthly payments for those leasing and buying a new vehicle is substantial.

Take the Honda (HMC) Civic.

The average monthly payment for those leasing was $347 in the first quarter according to Experian. By comparison, the average monthly payment last quarter was almost $100 lower for those leasing, at $251.

"On average, leasing is about $100 less every month and that's one reason leasing has become more popular," Zabritski says.


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17 Comments

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Sterling&Skyler

Why can't we just have a basic car?(no frills and about $300/mo.)

June 02 2014 at 5:06 PM Report abuse rate up rate down Reply
jdykbpl45

Prices are too high for short term loans.

June 02 2014 at 3:29 PM Report abuse +1 rate up rate down Reply
Valerie

Let's see, now..........

Consumers are signing up (in record numbers) for 7 year loans (with an average price of $27,000) for new cars, which lose 20-30% of their value as soon as you sign those loan papers. And that car will be repossessed, if you can no longer make your loan payments. Which means you lose all the money you already paid on the loan PLUS the car. (But buyers got a great rate on the financing.)

Consumers are signing up for home mortgages, even though no one in their right mind should consider $300,000 for a new house to be a "good deal". No way on Earth will that poorly constructed house still be liveable at the end of that 30 year mortgage. And the house will be foreclosed upon, if you can't make the mortgage payments, so you will end up homeless and lose all the money you previously paid on the mortgage. (But buyers got a great rate on the mortgage.)

Wells Fargo is again writing sub-prime slime loans for home mortgages. (But you don't need much down payment.)

Student college loans have reached a staggering total number. But you don't have to pay that back immediately --- and everybody "knows" a college degree guarantees a good-paying job as soon as you graduate. (Yeah, right.)

Unemployment numbers have reached a staggering number with millions out of work and getting desperate. (The few jobs available are from employers who want young people who are willing to work for low pay.)

My question is ---- has most of the population gone completely crazy?????? Why can't people understand that this is NOT an economy in which anyone should be piling up big debt???

The first housing crash was just a tune-up run. When this credit bubble bursts, the result will be devastating.

June 02 2014 at 1:00 PM Report abuse +1 rate up rate down Reply
Leanne Cho

Yikes! Who would want to go into debt for something as unimportant as a mode of transportation?

I drive a ’99 Toyota Camry handed down from my father-in-law who bought it new. I do my own maintenance so there’s minimal maintenance costs, no depreciation, low insurance ($25/month from Insurance Panda) and registration costs, no car wash expenses (I park it outside when it’s raining) and people think twice before trying to cut in front of me. It’s a comfortable ride on the highway but is also nimble on dirt roads. I could easily afford a new car but then I’d have to fuss about dents, scratches, car washes and all those other costs. It’s got a 3.1L V6 that achieves 30 mpg on the highway. As long as it continues to pass smog it’s a keeper...

and I don't have to "pay it off"!

June 02 2014 at 12:05 PM Report abuse +1 rate up rate down Reply
jerald3739

It is hard to be sympathetic about the poor middle class dropping down into poverty. Considering the way they take on debt and spend their money they belong in poverty. Has to be terrible to be so financially brain dead.

June 02 2014 at 10:53 AM Report abuse +1 rate up rate down Reply
1 reply to jerald3739's comment
rogue2474

Your full of happiness and joy for your fellow man Jerald! Join the human race sometime. They obviously qualified for the loan, do they get NO choice to do what they want? Seems like you have taken on the role of judge and juror for an individuals morals or financial decision making? You talk about the "middle class" like they are rats at your feet. Grow up...your immaturity is on display!!

June 02 2014 at 11:06 AM Report abuse -2 rate up rate down Reply
1 reply to rogue2474's comment
Craig

It's not hard to qualify for a loan, it's just a matter of the interest rate you have to pay.

June 02 2014 at 11:30 AM Report abuse +2 rate up rate down
ipdhome

7 year car loans? So what has changed since 2007- 2008? In a word NOTHING. So let's say this continues for a couple more years. Crash, boom, bang! Fred's comments are exactly right.

June 02 2014 at 10:32 AM Report abuse +2 rate up rate down Reply
toosmart4u

STILLMADEINUSA.COM

June 02 2014 at 9:40 AM Report abuse -1 rate up rate down Reply
toosmart4u

We are a great country creating jobs, only problem they are foreign countries. We should always buy american no matter what. We are loosing pride in America. Shameful.

June 02 2014 at 9:39 AM Report abuse -3 rate up rate down Reply
1 reply to toosmart4u's comment
rogue2474

America has also got to make QUALITY...can't sell us death traps or any other country for that matter and want us to buy their products. A loan is not a joke...its your life on the line financially and physically when you drive off their lot and they should have a lot more responsibility and accountability in their products. I'm all for buy American but you can also get a bad rep for quality and its hard to come back from that.

June 02 2014 at 11:11 AM Report abuse +1 rate up rate down Reply
John

Your $ amounts for leasing versus financing need to be reversed. You hace it stated backwards

June 02 2014 at 8:36 AM Report abuse rate up rate down Reply
fred

Ain't it funny how people spend money they don't really have to buy things they don't really need to impress people they don't really like?

June 02 2014 at 7:04 AM Report abuse +10 rate up rate down Reply
4 replies to fred's comment