Car loans with seven-year terms are becoming more of the norm as consumers yearn for lower monthly payments.
That's according to Experian Automotive latest State of the Automotive Finance Market report released last week, which showed the average car loan term in the first quarter reached 66 months for the first time.
The analysis also showed that loans with terms extending out 73 to 84 months made up 24.9% of all new vehicle loans originated during the quarter, growing 27.6% since Q1 2013. "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.
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While the benefit of a longer-term loan is the lower monthly payment, Zabritski said the flip side of that is consumers can find themselves paying more in interest or being upside-down on their loan if they seek to trade their vehicle in early.
Last spring, several other indicators, including Experian noticed a growing trend in longer car loan terms, with some extending out as long as 97 months. Meanwhile, the average amount financed for a new vehicle loan also reached an all-time high of $27,612 in Q1 2014, up $964 from the previous year. In addition, the average monthly payment for a new vehicle loan reached its highest point on record at $474 in Q1 2014, up from $459 in Q1 2013.
"Over the last several quarters, leasing has come back as a very desirable option for consumers," Zabritski said "Consumers are leasing new vehicles in greater numbers than ever before.
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