US new car buyers take on longer loans and record debt
Americans are financing new cars with larger loans and longer terms than ever before, as average prices and monthly payments hit new highs.
US consumers are borrowing more for new cars and spreading repayments over longer periods, as average transaction prices and monthly payments reach record levels. Data from Experian Automotive shows that nearly 30 percent of new vehicle loans now stretch to 84 months, up from previous years and well beyond the typical warranty period.
The average loan for a new vehicle in the US now stands at $28,711, with monthly payments averaging $488. According to Kelley Blue Book, the average transaction price for a new car has climbed to $33,340, about $1,000 higher than the same period a year earlier. Rising vehicle prices reflect both higher production costs and changing consumer preferences towards larger, better-equipped models.
Longer loan terms and higher debt
Experian Automotive reports that 29.5 percent of all new vehicle financing now involves 84-month loans, a duration that is about four years longer than a typical manufacturer warranty. The shift to longer terms allows buyers to keep monthly payments manageable despite rising prices, but it also means they remain in debt for much of the vehicle’s useful life and risk owing more than the car is worth as it depreciates.
The trend is driven partly by strong manufacturer incentives on slow-selling and competitive models, which help keep sales volumes high. The National Automobile Dealers Association forecasts US new car and truck sales above 17 million units for the year, the highest since 2005. Yet as buyers stretch further to afford new vehicles, concerns have emerged about the sustainability of the market and the risk of a debt bubble similar to the one that preceded the last recession.
Affordability gap widens
With average new car prices rising faster than incomes, more Americans are relying on longer loans and higher debt to buy new vehicles. This raises questions about long-term affordability and the potential for increased defaults if economic conditions change. For more on how rising prices are affecting US buyers, seeUS new car prices outpace incomes, leaving buyers behind.
