Americans love their SUVs and large trucks, which means dealers are giving out auto loans with lengthener loan terms. Many auto loans are offered up to 72 months, but some lenders are now offering an 84-month loan to ensure sales keep going.
According to records, Americans owe $1.1 trillion in auto loans, which is a record. About 20 percent of new vehicle loans have a 72-month loan term with 6.3 million people behind on their payments 90 days or more.
Bloomberg said over two-thirds of U.S. auto loans involve SUVs and pickups with new technology that’s leading to the higher prices. Some of these vehicles cost over $35,000. This has helped dealers to make money in a time when industry sales have dropped. However, it means consumer debt burden is increasing as well.
With lenders stretching loan terms out, it means consumers are paying more in interest. However, with interest rates increasing, there needs to be a better solution to ensure sales don’t fall flat.
Experian Senior Director Melinda Zabritski said unless consumers change their buying habits or prices drop, there won’t be a term reduction any time soon. She said the chances of more lenders offering a 75 to 84-month loan is likely.
It’s rather long time for a car owner to hold on to a rapidly-depreciating vehicle, but subprime car buyers, which make up nearly a quarter of the vehicle sales, helped the industry with their 2017 record-breaking sales. And, it’s all because of lax requirements by lenders.
While many larger vehicles are fuel-efficient, a gas price spike or economic recession could find consumers paying on loans they really can’t afford to pay on.