New car owners are adding more debt to their vehicle purchases, with an average new vehicle loan hitting a record high of $31,455 in the first quarter alone. The minute hike will add another 1.75 to 2 percent on interest rates will have a slight impact on an array of consumer financial products – auto loans too.
The first quarter also saw a rise in monthly new vehicle payments to $523, with the average interest rate hitting 5.2 percent.
Experian Senior Director of Automotive Financial Solutions Melinda Zabritski said buying a new vehicle is a dream for most people and it’s becoming elusive to do. For the trend to change, both lenders and dealers need to understand the data better and look at other options that ensure people can pay for a new vehicle.
One such option lenders and dealers have been toying with is putting prospective new car buyers in longer loans, which lowers the monthly payments but costs more in the long run. According to Experian’s report, new vehicle loans rose above 69 months to 72 or 84-month loans. Some dealers and lenders are even offering up to 96-month loans.
The largest group affected by the changing landscape is the deep-subprime and subprime loan borrowers who have credit scores that range from 300 to 600. There was a drop of 8.4 percent in new vehicle loans for subprime borrowers with a 14.1 percent drop for deep subprime borrowers.
There are other side effects to the higher new car loan costs. Credit unions make up a good share of the vehicle loan market at 21.3 percent with their used vehicle financing up two percent in the last year. Used vehicle loans hit a record as well as $19,536 in the first option due to more people looking for cheaper options.