29.5% Of New Car Loans Are 7 Years Or Longer

Retail auto sales have looked strong, as the latest SAAR for June was around 17.2 million. By the same token, consumers are willing to pay more and more for new vehicles. According to Kelley Blue Book, the average out-the-door cost of a news vehicle sits at $33,340. This number represents a $821 increase year-over-year and a $209 increase from the previous month. Also, as we’ve reported on previously, the length of consumer auto loans continues to rise.

Experian Automotive reports longer-term car loans are rising. Auto loans lasting 84 months or longer now represent the financing for 29.5 percent of all new vehicle financing. The average cost of a new car loan in the U.S is now $28,711, an increase of around $1,000 year over year. The average monthly payment for consumers taking on a new car loan is $488. All of these numbers seem accelerated with auto sales numbers climbing, however, one expert thinks auto sales will not maintain their current pace.

According to Alec Gutierrez, senior analyst for Kelley Blue Book, car sales are up but the pace won’t continue. Gutierrez said in a press release, “With another month of new-car sales growth in June 2015, the sixteenth in a row, the auto industry continues its incredibly strong momentum. However, heading into the summer months, sales should flatten out at a more sustainable pace.”

The trend of more and more auto loans of seven years or longer are part of a growing consumer desire to lower monthly payments even if it means repayment takes more time. According to Melinda Zabritiski, the senior director of automotive finance at Experian, longer-term loans can come with a price for consumer and potentially dealers. Zabritiski said in a statement, “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’s critical for consumers to understand that if they take a long-term loan, they could face negative equity should they choose to trade it in after only a few years.”

What trends have you seen at your store? We’ll all heard that the SAAR is strong and sales are up, but what did that translate out to for you? Have you had a better 2015 than 2014 thus far? Are you seeing more and more consumers willing to finance over seven years for a lower monthly payment?