The Car Loan Market Is Still Bananas And It Doesn't Feel Right

Illustration for article titled The Car Loan Market Is Still Bananas And It Doesn't Feel Right
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Every month or so, sometimes even quicker than that, there will be a new report out about how long and bonkers car loans have gotten these days and, possibly because I’m an anxious person, these stories give me a twitch. A report Thursday says, yes, big, long loans being handed out for big SUVs and trucks are still increasing.

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Via Reuters:

U.S. consumers borrowed more for longer in the first quarter of 2021 so they could drive more expensive trucks, crossovers and SUVs, according to a new Experian study of auto credit market trends.

[...]

More than 56 percent of new vehicles financed in the first three months of 2021 were SUVs, and another 17 percent 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 longer than 72 months rose to just over 35 percent of the total from just under 32 percent a year earlier.

Used-vehicle lending showed a similar pattern of more borrowed on average for longer periods.

Seventy-two months is six years, meaning that over a third of new car loans these days are over six years in length. That is presumably because as people borrow more — and this says the average is now $35,392 — they want their payments to be low, or if not low, they want their payments to slot into whatever amount in their head they think a car payment should be.

As a child of the 90s, for me that number is $250 or so, but, even on an 84-month loan with a 3 percent interest rate, a $35,392 car would cost over $450 a month, according to Google’s calculator. That is apparently a thing a lot of people are willing to take on, which seems ... not optimal.

That said, Experian’s report also contains two facts that might suggest that this is all fine in the near-term, namely that the number of delinquent car loans is down and that the average credit score for new and used car buyers is up. Still, since these long loans are a relatively new phenomenon, I have questions about what will happen near the end of them, when buyers are still paying down a big loan on a car that is now over six years old and possibly breaking.

Our resident car expert Tom McParland tells me that such a long loan might make sense if you’re putting a lot of money down and what you’re buying is reliable and will have a good resale value. I’m sure that’s not the case for every one of these, and those are the ones that stress me out.

News Editor at Jalopnik. 2008 Honda Fit Sport.

DISCUSSION

fastassgolf
FastAssGolf

A 6 year loan makes perfect sense if the interest rate is low.

If I have excellent credit, and the rate is the same on a 4 year loan as a 6 year loan, why take the 4 year loan?

I’ve beaten this horse to death in this comments section, but cash on hand now is ALWAYS more valuable than the same amount of cash on hand later. I want as many of the loan dollars paid off in future (read: more inflated) dollars as I can. $250 72 months from now is worth less than $250 next month, both in terms of real value and opportunity.

Is this the kind of math most buyers are doing? Fuck no, they’re picking a monthly payment number and tweaking the loan until they get there. But some of those higher credit buyers? They recognize a good deal when they see one, and near (or sub) inflation rate loans are a good deal if you can get them. I’ll take a 30 year loan on a car if you’ll give it to me at 0%, worst case I can cut a check to the bank when I want to sell the car.