Auto loans grow longer as buyers buy a payment
When the data on new car sales in the first quarter of 2021 is released this week, it should show a recovery after the sharp drop last spring.
Even though auto factories experience periodic shutdowns due to material shortages, sales of new vehicles have been one of the engines of the country’s economic recovery after the economic downturn triggered by the pandemic.
But as sales pick up, the duration of new car loans is increasing, according to a TrueCar survey. More than 80% of new car buyers use some kind of financing to pay for their new vehicle, the data shows.
For many buyers, a manageable monthly payment is essential, TrueCar said. In fact, the TrueCar survey found that 71% of respondents said affordable monthly payments if you buy from BridgePayday were the top priority when preparing to buy a new vehicle.
Rising average vehicle prices
With the average price of a new vehicle now hovering around $ 40,000, extended loan terms are increasingly being used to make a new vehicle purchase work within a buyer’s budget, TrueCar said.
Terms of over 73 months now account for 30% of new vehicle loans, the company said. In addition, since February 2020, the number of 84-month loans has increased by 13% compared to the previous year.
60-month loans, which have become the norm for purchasing vehicles, may be eclipsed in the not too distant future.
Longer loan terms help buyers’ budgets
The TrueCar blog notes, “Extending a term to 66, 72, or even 84 months can give buyers some payment relief. For example, if a buyer uses a loan of $ 38,000 with an interest rate of 5% for a 48 month or four year loan, the monthly payment will be $ 876. For a 60 month or five year loan drops to $ 718 per month and for a 66 month loan the monthly payment drops to $ 660.
On a 72-month or six-year loan, the monthly payment drops to $ 612 and $ 572 for a 78-month term, while the monthly payment drops to $ 538 per month on an 84-month or seven-year loan. according to the TrueCar.
TrueCar noted that while leasing is an option for many buyers, the rental limitations may not line up perfectly, especially for people who may need to modify a vehicle or travel long distances, or who may do not return the vehicle to the bank in good condition after the term. is finished.