An auto loan that lasts six, even seven years? That is the lending period that more Americans are opting into, even though it is highly suggested that borrowers do not keep themselves underwater for such a long period of time while leaving their vehicle in negative equity.
Experian, which tracks America’s auto finance market, says loans with terms of six to seven years are showing the fastest growth among all buyers.
In the third quarter of this year, the proportion of auto loans of 73 to 84 months jumped 17.1% compared with the same period a year ago.
More than a quarter of all auto loans now last at least six years.
“(Those) loans are becoming more popular because so many consumers are now looking to keep their monthly payment under $500,” said Melinda Zabritski, Experian’s senior director of automotive finance.
The average car payment? $482.
The most popular term length for auto loans remains 61 to 72 months with about 40% of new vehicle loans at 5½ to 6 years, according to Experian.
The average length of all auto loans is 67 months.
Even Bob Lutz, former vice chairman of General Motors, admits that longer terms with their negative equity status is bad for borrowers.
Unfortunately, many dealerships are to blame for this practice. In order to keep car payments under $500 per month, dealerships are increasingly turning to 72 to 84 month terms.