The Number of 96-Month Auto Loans Is on the Rise
As the average price for a vehicle climbs upward, many consumers are applying for loans lasting eight years or more to pay for those vehicles
Consumers who choose to buy new when vehicle shopping are spending an increasing amount of money during their purchase. So far this year, the average price for a new vehicle is set somewhere around $32,200.
While some buyers might be able to pay off that amount of money during a traditional 36-month loan, many would struggle to meet those kind of payments. However, instead of buying used or selecting a less expensive vehicle, many consumers are employing a risky economic alternative.
The number of consumers applying for 96-month automotive loans is on the rise.
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Extended auto loans have become rather commonplace during the past few years, with a record 20% of new vehicle buyers applying for 72-month loans. However, financing a car over a period of eight years was previously unheard of.
Yet between 2017 and the start of 2018, the amount of new car loans in the 85-96 month range has risen from 0.9% to just above 1%. While a 0.1% increase may not sound like a lot, it accounts for approximately 17,000 more vehicles being financed through loans exceeding seven years.
While it’s true that drivers are holding onto their vehicles for longer periods of time now, the vast majority of those vehicles are completely financed well before they are scrapped or traded in. Many of these drivers are purchasing new daily drivers to replace their old vehicles before those vehicles are even paid off in full.
That’s not the only shocking financial figure for this year’s automotive market. Nationwide, consumers have $1.2 trillion of loan amounts outstanding, and 6.3 million of those consumers are 90 days or more behind on their auto loans.
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That much automotive debt, paired with a growing amount of extended auto loans, could spell financial disaster for many drivers. By opting for these eight-year loans, consumers face a greater risk of default, along with minimum recovery values for their vehicles. Additionally, studies have found that, on average, the longer the automotive loan period applied for, the lower the credit score.
If these findings sound similar to events that led to the housing crisis in the late 2000s, that’s because the circumstances are eerily similar. Only this time, instead of the housing bubble bursting, it could be the automotive market that is affected.
News Source: Jalopnik