US: auto loans now spreading across longer periods image

The US automotive industry, the second largest market in the world behind China, is running full steam ahead, with new car sales almost reaching record levels unseen since before the Great Recession.

Among the numerous factors contributing to the current health of the US auto market is the fact that consumers are reaching easier financing, with the purchases being awarded longer terms for repayment. According to Experian Automotive, an Ireland-based information services company, the average new car loan in the US has now spread to a record period of 67 months. The tally of loans that have terms ranging between 73 and 84 months has also reached a new peak of 29.5 percent in the first quarter of 2015, rising from 24.9 percent for the year-ago period. “While longer term loans are growing, they do not necessarily represent an ominous sign for the market,” commented Melinda Zabritski, Experian’s senior director of automotive finance. “Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank.”

On the other hand, analysts and experts agree that customers need to be briefed on the fact that a longer term incurs a longer ownership period and could face negative equity if they want to trade it in for another new vehicle in just a few years. Also, the average financed sum used to purchase new vehicles has soared to $28,711 during the first quarter of the year, from $27,612 during the same period of 2014.