Sign of the Times? Car Buyers Stretch on Loans
As auto sales grow so is the length of time consumers are taking to pay for their new car or truck.
Experian Automotive analyzed the nearly five million auto loans written in the first quarter of this year and found the average length for a new vehicle loan has grown to 64 months, up 1 month compared to the first quarter of 2011.
“It’s all about managing the monthly payment,” says Melinda Zabritski, Director of Automotive Credit. “People are taking out longer loans so the payment is right.”
Right now, the average monthly auto loan payment is $461, a dollar higher than it was last year. The average amount financed is $25,995 (up $589 compared to last year). As consumers try to keep their car payment in check, they are increasingly signing up for loans that stretch out over 6 and 7 years. In the first quarter there was a 15.4% surge in auto loans running 73-84 months.
The first quarter also saw an increase in the percentage of loans written for those buyers with non-prime credit scores. More than 23% of the loans in Q1 were for buyers with non-prime, subprime, and deep subprime credit scores. All three of those groups saw at least a 10% surge in new loans.
Should that growth in subprime auto loans be a concern? Not necessarily.
“As the economy improves and more credit becomes available, this is the natural development of the market,” says Zabritski. “If lenders are managing those loans properly, it is not an issue.”
Experian says 30 and 60 day delinquencies both fell in the first quarter, while repossessions fell by 37%.