Americans Borrowing More Than Ever to Buy Cars

Experian notes creditworthiness of buyers improved in Q4 2017.

by on Mar.02, 2018

During Q4 2017, Americans borrowed more money for longer periods of time than ever for new and used vehicles.

Auto sales continue to drop, yet Americans are borrowing more money than ever to buy new and used vehicles, according Experian’s analysis of fourth quarter of 2017.

Experian shows that auto loans are at record highs for new vehicles, $31,099, and used vehicles, $19,589. Additionally, the amount of money loaned to purchase vehicles is up for the quarter to $1.12 billion. In Q3, that figure was $1.07 billion.

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“I think we’re certainly at a point where affordability is a question,” said Melinda Zabritski, 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.”

The average monthly payment for a new vehicle hit an all-time high of $515, while the average used auto loan payment also hit a new record: $371 per month. This rise is somewhat alarming as the average length of a loan continues to growth.

(Auto sales falter in February. Click Here for the story.)

On average, a new car loan is a little more than 69 months, according to Experian, while the average used vehicle loan has a term of just over 64 months. Buyers are extending their loans to get their payments lower in order to buy more expensive vehicles.

According to Edmunds.com, the price paid for a new vehicle rose more than 10% over the last five years. Last year, the average price paid for a new vehicle was an all-time high of $35,176, according to Edmunds.com. That price is up from $33,532 in 2015 and $31,773 in 2013.

This isn’t a big surprise. The increased sales of new trucks and utility vehicles is helping to push the average up. Interest rates have also risen as the Federal Reserve has made a few adjustments during the past year.

(Click Here for details about new vehicle sales holding steady in January.)

“For some buyers, this is going to come as a surprise,” said Jessica Caldwell, 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.”

In February, the average interest rate for new financed vehicles was 5.2%, up from 4.9% a year ago and 4.4% five years ago.

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

(To see more about global auto sales hitting a record this year, Click Here.)

However, this seems to be one area where lenders are clamping down, as they look to avoid the mistakes of the past, the number of prime and above lenders rose in the final quarter. More than 61% of buyers had credit scores in the prime or better range. That an increase of 1% over Q4 2016.

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