The latest findings from Experian show that consumers continue to stretch out their auto loan terms, which is a concerning trend.
The Latest from Experian
At CU Direct's 2017 Drive conference in Las Vegas, Experian's Karl Kruppa presented some troubling findings: auto loan term lengths continue to get longer. For instance:
- 11.7% of new car loans were for 73-84 months in the first quarter of 2009.
- In the first two months of 2017, that figure has skyrocketed to 33.8%.
As Kruppa pointed out, this means that the share of new vehicle loans with terms of 73 to 84 months has almost tripled over the past eight years.
The data also shows that consumers continue to push the limit.
- In the fourth quarter of 2010, 17.1% of new vehicle loans were 84 months long.
- During the fourth quarter of 2016, that number was up to 28.7%.
As for the used car market, things aren't much different. Experian's data shows that close to 30% of 2016 model-year used vehicles are financed for 73-84 months. While most long-term loans are for cars that are only a couple of years old, there are also some troubling exceptions. For example, 10% of 2010 model-year cars are being financed for 73-84 months, according to Experian.
Six or seven years is a lot of time to commit to paying for a car.
Concerns with Longer Auto Loan Terms
This is a dangerous trend going on in the industry, especially for consumers with less than perfect credit.
Most people turn to longer auto loan terms because it lowers their monthly payment. However, it also increases the amount of interest you ultimately pay.
So, while the monthly payment is lower, the total cost of financing your vehicle is higher. This problem is worse for people with imperfect credit who aren't able to qualify for the best interest rates.
In addition to making the loan more expensive, longer auto loan terms have other drawbacks:
- You Face Being Upside Down for Longer. If you take a long loan term, you will have negative equity longer than if you were to finance that same vehicle for a shorter term. When you owe more on the loan than what the car is worth, it makes it more difficult to sell, trade-in, or refinance.
- What About Repairs? Additionally, if you opt for a new car, the warranty will end long before a six- or seven-year loan term is up. As for used cars, it's very possibly that expensive repairs will be needed somewhere along the line. Even worse, your vehicle could break down completely, which could leave you stuck paying for a car that no longer runs.
- You Can't Predict the Future. Again, six or seven years is a long time, and there is no way to predict the future. Things in your life are likely going to change during that time, which could alter your vehicle needs. It could be tough to adjust, because it's harder to be flexible with a longer-term loan.
The Bottom Line
Car buyers need to carefully evaluate their situation before deciding how long to finance their next vehicle for, especially if they have bad credit.
If you have less than perfect credit and need a car loan, you don't have to struggle to find financing with the help of Auto Credit Express. Our free service connects car buyers to local special finance car dealerships, making the process of finding financing faster and easier.
Get started right now by filling out our secure car loan request form.
