Auto rates drop, buyers take on record loans
Following news of a strong Black Friday and better-than-expected November sales, a new report on the auto industry is showing signs of a strengthening consumer.
According to findings on auto financing from Experian, Americans took out a record number of auto loans in the third quarter, and interest rates slid to their lowest level in at least six years.
The report, released Wednesday, showed the average amount borrowed for new vehicle loans in the third quarter was $26,719—an increase of $756 compared to the same period in 2012. It's also the highest average amount financed that Experian has recorded since it started tracking auto loans in 2008.
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Meanwhile, the average new car auto loan interest rate in the third quarter dropped 26 basis points to an average of 4.27 percent. That's about half the third-quarter average for used car borrowers, who on average took out loans with an interest rate of 8.63 percent.
The average monthly payment for new car buyers climbed $6 to $458 in the third quarter.
Borrowing more as transaction prices climb
One reason new car buyers are taking out record loans is because the cost of new vehicles has continued to edge higher.
As buyers are becoming more comfortable adding extra content and features to their new cars and trucks, the average transaction price for those vehicles remains higher than $30,000. For November, TrueCar.com said the average price paid for new vehicles was $30,634.
Another factor behind the rise has been the increase in sales of luxury cars and SUVs, which sell at higher price points. Luxury sales, for example, are up about 11 percent this year, outpacing the industry as a whole. Much of that growth is being fueled by leasing programs.
Longer auto loans grow in popularity
With the amount financed for new car loans hitting a record high, many buyers are stretching out the terms so they can keep the monthly payment as low as possible.
Experian said the average new vehicle auto loan was for 65 months in the third quarter, which is one month longer compared to the same period last year, according to the report.
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While 40.9 percent of all new auto loans are spread out over five to six years, consumers are increasingly taking out loans stretched out over 6.1 to seven years. Experian said 19 percent of all auto loans in the third quarter were for term lengths between 73 and 84 months, which is an increase of 16 percent.
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