It seems millennials like cars just as much as their older brethren.
Despite being pegged as the generation that shuns owning a car, millennials appear to like buying autos more than their Generation X counterparts did when they were younger.
Consumers, ages 21 through 34, are taking out new auto loans at a 21 percent higher rate than Gen X borrowers did when they were that age, according to a study released Wednesday by TransUnion.
"Unless you live in a place where public transportation is effective and convenient, you still need a car," said Ezra Becker, senior vice president of global research and consulting for Chicago-based TransUnion.
TransUnion compared millennials' auto loan originations in 2015 to those made by Gen Xers in 2001. The report defines Gen X as people born 1965 through 1979; millennials, 1980 through 1994.
Becker said auto-loan terms are much longer than they once were. When Gen Xers were in their 20s and early 30s, the longest term available generally was five years.
"Now, you can get a seven-year loan, which lets a lot of consumers manage their cash flows better," Becker said.
For example, a $25,000 loan on a new car with a 4.5 percent interest rate would be about $466 a month over five years (60 months), excluding and taxes and fees. A seven-year loan (84 months) with the same interest rate would cost $347.
The amount of interest shelled out on the longer loan, however, also is higher. On the five-year loan, total interest would be $2,965. Over seven years, interest would total $4,190. Higher interest rates, of course, incur even higher amounts paid over the life of the loan.
Technology has also fueled millennials' car-purchasing habits. Online shopping tools aimed at car shoppers has expanded the traditionally local marketplace, and millennials have embraced it, Becker said.
"Now you can find cars available not just in your neighborhood but across the country, so you have a better ability to find what you want at the price point you want," Becker said. "That kind of online shopping is very comfortable for millennials."
Comparing Generations
| Credit Product | Origination rate (Gen X 21-34) | Origination rate (millen's 21- 34) | Difference |
|---|---|---|---|
| Auto loans/leases | 12.09% | 14.58% | 21% |
| Bank-issued credit cards | 25.07% | 19.50% | -22% |
| Private-label credit cards | 17.05% | 15.28% | -10% |
| Personal loans | 2.18% | 4.33% | 98% |
| Mortgages | 9.72% | 5.16% | -47% |
Source: Source: Transunion 2017 millennial study
It's worth noting, too, that interest rates on auto loans were generally higher when Gen Xers were at a comparable age. The current average rate on a five-year loan for a new car is 4.21 percent, according to ValuePenguin. In 2001, the average rate ranged from about 6 percent to close to 10 percent, depending on the source of the loan.
The study also confirms what other research shows: Millennials are not buying houses at the same rate as previous generations. Compared with Gen Xers at their age, they are obtaining mortgages at a 47 percent lower rate.