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.
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.