Car Buyers Are Stretching Loans to Seven Years or More, and Payments Are Still Hitting Records
Seven-year loans are the new five-year loans
Car buyers are stretching loans to seven years or more just to afford the monthly payment, per CNBC. And payments are still hitting records. The average new-car payment reached $787 a month in the third quarter, the average amount financed hit a record $44,664, and the average interest rate held at 7%, according to Edmunds data reported by CNBC. Loans of 84 months or longer accounted for a record 25.5% of financed new-vehicle purchases, up from 23.9% in the second quarter and 21.8% a year ago.
Car buyers are stretching loans to seven years or more just to afford the monthly payment, per CNBC, and the average new-car payment has still climbed to a record $787 a month.
Rates are not the problem. Principal and term are.
The records are being set without any help from interest rates. The average APR held at 7% for the third consecutive quarter, Edmunds reported, while the average total interest paid over the life of a loan climbed to a record $9,938 because buyers are financing more money over more years. A record 21.2% of buyers committed to payments of $1,000 or more a month, and nearly 30% of trade-ins toward new cars carried negative equity, rolling old debt into new loans.
"What we're seeing in the data is a remarkable display of consumer resilience against a very stretched financing landscape," said Jessica Caldwell, Edmunds' head of insights, in comments cited by CNBC. Edmunds' Ivan Drury added that a longer loan term may be the only way for many buyers to afford a vehicle they need. The average new-car transaction price was $50,089 in August, per Kelley Blue Book, and Edmunds said the Trump administration's finalized fuel-economy rollback may offer some relief without necessarily lowering prices on dealer lots.
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Stretching terms is how the industry keeps volume alive at $50,000 average prices, and it works until credit does not: F and GM depend on financing staying available at these terms, and the lenders in XLF are underwriting loans that now routinely outlast the warranty.
Watch negative equity and delinquency trends alongside term lengths in the next Edmunds report, and follow auto finance on the Unusual Whales news feed.
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