Americans love cars and debt, so it’s only natural that they would combine the two. A new report finds that auto loans are becoming more supercharged than ever as financing terms reach record highs. However, consumers should remember to steer clear of buying more car than they can really afford.
The average auto-loan term increased to 66 months during the first quarter, according to Experian Automotive, a global information services company. That is the highest level since Experian began publicly reporting the data in 2006.
Making matters worse, nearly 25% of all new vehicle loans originated during the quarter had terms extending out 73 months to 84 months, representing a 27.6% surge from a year earlier. The average amount financed for a new vehicle loan also reached an all time high of $27,612.
“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,” said Melinda Zabritski, Experian Automotive’s senior director of automotive credit.
The average monthly payment for a new vehicle loan hit a record high of $474 in the first-quarter, driving more buyers to leases. Of all new vehicles financed, 30.2% were leased compared to 27.5% a year earlier.
“Over the past several quarters, leasing has come back as a very desirable option for consumers,” said Zabritski. “Whether they are interested in getting the latest and greatest models or simply do not want to commit to a long-term purchase, consumers are leasing new vehicles in greater numbers than ever before.”
While leasing a car may sound like a good idea at first, most financial advisers agree that purchasing a car is typically the wiser move in the long run.