Consumers Snag Auto Loans at Record Rates


If you’re in the market for a new car, it’s likely that you’ll use an auto loan to finance the purchase. According to recent data, more and more people are utilizing loans to buy vehicles — especially when dealing with used cars.

A recent study by Experian, an information provider that tracks new and used vehicle loans, found that 85 percent of new car purchases and 53.8 percent of used car purchases were financed in the second quarter, up 0.5 percentage points and 0.9 percentage points respectively from the same time in 2013.

“More and more consumers, especially those that are credit challenged, are turning to the used vehicle market as a viable option to purchase their next car,” said Melinda Zabritski, senior director of automotive finance for Experian.

autoloanThe same study also showed that banks were the largest lenders to consumers buying used cars, responsible for financing 35.6 percent of all used car loan purchases, down 0.8 percent from the second quarter of last year.

The amount of people using new and used auto loans isn’t the only thing that has increased — the loan amounts and monthly payments have also risen. The average used vehicle loan increased 1.9 percent (to $18,258) and the average monthly payment rose 1.1 percent (to $355). These numbers are both the highest they’ve ever been.

Because of the auto prices and loans at such a high rate, more and more consumers are leasing and extending loans in order to keep their monthly payments down. Last quarter, 29.1 percent of all new vehicle loans involved leases with the average monthly payment being $397.

Additionally, long-term auto loans are at a high, with almost a quarter of all new vehicle loans at six and a half to seven years in length. That’s a 23.7 percent increase from the previous quarter.

“Paying off auto loans over a longer period has become more popular because it lowers the amount of the monthly payment,” according to CNBC. “However, the benefit of lower payments means it takes longer for borrowers to reach positive equity in their vehicles.”

The other downside to a longer loan term is that interest rates tend to be slightly higher. According to Zabritski, even though people who take six years instead of five to pay off their cars save an average of $75 a month, they may actually wind up paying hundreds extra in interest.

With the rise in auto loans, there’s also been a rise in auto loan delinquencies, but it’s still not a high number; 0.62 percent of all loans were delinquent for 60 days in the third quarter, according to Experian.

“Understand truly how much car you can afford,” Zabritski says. “Realize the additional costs involved in car ownership and do your research.”

Whenever you’re ready for an auto loan, contact us today and let us help you with the process.

 

 

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