More Americans Borrow to Buy Vehicles

Americans are borrowing more to purchase both new and used vehicles in spite of rising interest rates, according to analysts.

More Americans are borrowing money now to buy new and used cars, according to Experian.

Experian released the results of an analysis of auto loans in the fourth quarter, showing that the average new vehicle loan hit a record high of $31, 099. Meanwhile, the average used car loan catapulted to a record of $19, 589.

“I think we’re certainly at a point where affordability is a question,” said Melinda Zabritski, who is Experian’s senior director of automotive finance solutions. “When you look at how much income you need to support that payment, it certainly is higher than your average individual income.”

During the fourth quarter, the average monthly payment for a new car hit an all-time high of $515. The average used auto loan payment reached another record of $371 per month.

The jump in the payments and loans prolongs the trend of consumers who are paying more and taking longer to pay for the cars and trucks they buy. According to Experian, Americans are extending a new car loan over 69 months on average. The report suggests that the average used auto loan has a term of slightly over 64 months.

Consumers are extending out their loans because the prices they pay for new cars have increased more than 10 percent over the last five years. Last year, the average price paid for a new auto was an all-time high of $35, 176, according to Edmund.com. That price is an increase from $33, 532 in 2015 and $31, 773 in 2013.

One reason for the people’s raised spending is their increased purchase of trucks and SUVs, which are both sold at comparatively higher price points than others. Rising interest rates may also be a factor.

“For some buyers, this is going to come as a surprise,” said Jessica Caldwell, who is the executive director of Industry Analysis for Edmunds.com. “For buyers with average credit scores, the rates are higher than a couple years ago and that will mean a higher monthly payment.”

Last February, the average interest rate for a new financed vehicle was 5.2 percent, which is a jump from 4.9 percent a year ago. It was also an increase from 4.4 percent five years ago.

“We’re starting to see a trickle-down effect from the rate increases happening at the federal level,” Caldwell said.

Total car sales in February dropped

February Car Sales Fall

Meanwhile, even as more people are borrowing for automobiles, auto sales fell steeply in February amid tightening credit conditions, higher interest rates, and stingy discounts, which all drove up monthly payments and slowed down the US car business despite the broader economy’s strength.

Detroit automakers reported the second-consecutive collective decline in domestic sales in 2018. Dealers claimed that it was becoming more difficult to offer customers an attractive monthly payment.

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