As auto prices soar, more buyers take out 6½- and 7-year loans – What We Know!

A pair inspects the Monroney sticker on a Ford automobile on the Helfman Ford dealership on October 28, 2021 in Houston, Texas.

Brandon Bell | Getty Pictures

The surge in auto costs within the second half of 2021 has pushed extra customers to take out auto loans that stretch past six years, in line with a brand new report analyzing how hundreds of thousands of customers finance the automobiles they’ve bought.  

Credit score monitoring service Experian, which analyzes new and used automobile loans, says greater than a 3rd of all new automobiles purchased within the fourth quarter have been financed with loans which have phrases of 6½, seven and even 7½ years.  

Longer mortgage phrases are a technique auto consumers try to offset a spike in new and used automobile costs sparked by the low stock of recent vehicles and vehicles.  

“The uptick (in mortgage quantities) will not be solely attributed to stock shortages, it’s partly attributable to customers merely shopping for bigger automobiles,” mentioned Melinda Zabritski, senior director of automotive monetary options for Experian.

Within the fourth quarter, the typical quantity financed for a brand new automobile mortgage jumped $4,300 in contrast with the identical time in 2020, hitting an all-time excessive of $39,721. Whereas customers have tried to decrease their funds by taking out loans with longer phrases, the typical month-to-month fee nonetheless elevated $65 to a file excessive of $644.

The numbers are the newest indication sturdy demand and low inventories have mixed to drive auto costs a lot increased. “What I feel you might be seeing is the final raise from the heavy discounting in 2018 and 2019,” AutoNation CEO Mike Manley informed CNBC after the auto supplier reported very sturdy fourth-quarter earnings. 

Increased mortgage quantities and month-to-month funds will not be simply restricted to new automobiles. Experian says used automobile costs and loans climbed to a file excessive with the typical quantity borrowed in fourth quarter reaching $27,291, a rise of 20%.  The typical month-to-month mortgage fee is now $488, a file excessive in line with Experian.