When it comes to buying new and used vehicles, Americans lead the way in the amount of money they’ll borrow to close the deal. The staggering number of $968 billion in the third quarter of 2015 sets an all-time high, according to Experian, which is in the business of tracking such things as auto loans and consumer credit.
Record auto sales and a rise in the prices of newer vehicles across the board have contributed to an increase in loan amounts, resulting in nearly a trillion dollars of debt for the quarter. So, while Americans are buying more cars – they’re borrowing more, too.
Sales of new vehicles in the U.S. through October were up 5.8 percent. And, according to the research firm Autodata, at the current pace over the final two months of 2105, a new record for annual sales could be set with an estimated total of 17.46 million vehicles sold.
Melinda Zabritski, senior director of automotive finance with Experian, believes one of the main reasons for this is that more people are turning to conventional auto loans to pay for their vehicles rather than using cash or financing it with money from a home equity loan.
Ironically, in spite of the added burden of larger auto loans, the percentage of borrowers who have become delinquent 30-days and 60-days in the third quarter compared to last year have actually dropped and remain quite low.
But, that can be explained, according to Experian, by the fact that 61.3 percent of the loan money borrowed in the third quarter came from buyers with prime or super-prime credit ratings. These particular creditors, typically, have a stellar reputation of repaying their debts.
Yet, another factor may be responsible for the rising amount of money borrowed – the extended length of car loans on both new and used vehicles. For example, car research and shopping site, Edmunds.com reports that, in 2014, the average term of a new-car loan was 67.2 months, which became a record. Meanwhile, a used car loan wasn’t much lower, going 62 months on average.
While long term auto loans can be lots of trouble, according to some experts, car buyers seem undeterred, choosing to extend them in order to make their monthly payments more affordable.
Nevertheless, those with a negative view of the situation suggest the reason America’s auto market has been flourishing is due mostly to an increase in loans to “high risk” borrowers with a less than adequate credit score. But, Zabritski quickly discounts the existence of “a bubble in subprime auto loans”.
Regardless of the reason for American consumers borrowing more money to buy a car than ever before – the simple fact is – they are. And, as long as car buyers are fueling the economy, most experts agree – it’s good for everyone.
Knowing you’re getting the best auto insurance rates available is also a good thing. After all, comparing what you’re paying now with what you could be paying is quick and simple. Find out for yourself by getting a free auto insurance quote comparison today!
Have you recently purchased a new or used vehicle with an extended loan? Feel free to share your thoughts in the comments section below.