Every month or so, sometimes even faster than that, there will be a new report explaining how long and crazy auto loans have gotten these days and, maybe because I’m an anxious person, these stories give me a jolt. A report released on Thursday said, yes, big and long loans for large SUVs and trucks are still on the rise.
Going through Reuters:
U.S. consumers borrowed longer in the first quarter of 2021 so they could drive more expensive trucks, crossovers and SUVs, according to a new study from Experian into auto credit market trends.
Over 56% of new vehicles financed in the first three months of 2021 were SUVs, and 17% were pickup trucks. The average amount financed to buy a new vehicle rose to $ 35,392 in the first quarter from $ 33,833 a year earlier.
The share of new vehicle loans older than 72 months rose to just over 35% of the total, from just under 32% a year earlier.
Used vehicle loans have shown a similar trend of borrowing more on average for longer periods.
Seventy-two months is six years, which means that over a third of new car loans these days are for more than six years. This is probably because, as people borrow more – and that means the average is now $ 35,392 – they want their payments to be low, or if not low, they want their payments to be included in the amount they are paying. ‘they think a car payment should be. .
As a child of ‘90, for me that number is around $ 250, but, even on an 84 month loan at a 3% interest rate, a $ 35,392 car would cost more than $ 450 per month, according to Google’s calculator. This is apparently something a lot of people are willing to take on, which seems … not optimal.
That said, the Experian report also contains two facts that might suggest that all is well in the short term, namely that the number of delinquent auto loans is declining and the average credit score of new and old car buyers. opportunity is on the rise. Yet since these long loans are a relatively new phenomenon, I have questions about what will happen towards the end, when buyers still pay off a big loan on a car that is now over six years old and possibly broken down. .
Our resident automotive expert Tom McParland tells me that a loan so long strength It makes sense if you are putting in a lot of money and what you are buying is reliable and will have good resale value. I’m sure that’s not the case for all of them, and these are the ones that stress me out.