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Average Loan Term for New Cars Hits 67 Months

Motor Trend logo Motor Trend 6/8/2015 Kelly Pleskot

As new cars become increasingly more expensive to finance, buyers are taking out longer-term loans. According to a new report from Experian, the average new loan term has increased to an all-time high of 67 months.

2015 Toyota Camry XLE© Provided by MotorTrend 2015 Toyota Camry XLE

Although that seems like a long time to pursue a loan, it's also very common for consumers to seek even longer loans lasting between 73 to 84 months. These loans accounted for 29.5 percent of all new vehicles financed in the first quarter of this year, an 18.6-percent rise from the first quarter of 2014. Used cars are also commanding longer loans, with the average loan increasing to 62 months.

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But not to worry, Experian says. “While longer-term loans are growing, they do not necessarily represent an ominous sign for the market,” Melinda Zabritski, Experian’s senior director of automotive finance, said in a recent statement. “Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank."

And those payments just keep growing. The average monthly payment inched up from $474 to $488 in the first quarter. In total, customers now spend an average of $28,711 for a new-vehicle loan, compared to $27,612 from a year earlier. Used vehicle loans are also slightly higher, reaching up to $18,213 from $17,927.

Leasing has increased in popularity, now commanding 31.4 percent of all new cars financed. The average lease payment was slightly more manageable last quarter, hitting $405 from $412 from the previous year. Credit has also loosened up a bit since the average new vehicle lessee had a score of 718.

Although Experian says that these gains in vehicle financing are "signs of a strong automotive market," the data service company also cautions against certain risks. "It is critical for consumers to understand that if they take a long-term loan, they need to keep the car longer or could face negative equity should they choose to trade it in after only a few years," according to Zabritski.

Source: Experian Automotive

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