The Average Car Loan Is Now 5.5 Years (And Growing)

August 26, 2014

Back in July, Equifax revealed that Americans have taken out $902.2 billion in car loans -- an all-time high. But the credit company also told us not to worry, because nearly everyone is paying back those loans on time. In fact, the number of loans in delinquency now hovers near record lows.

Then in August, we heard that loans to subprime borrowers were surging. That might've been another red flag, but analysts say it's to be expected, given the number of people who experienced bankruptcies and other credit problems during the Great Recession. Nothing to worry about (yet).

Now, Detroit News has identified another potentially ominous sign: according to Experian Automotive, the term of the average car loan is lengthening. In 2010, auto customers took out loans for an average of 62 months. In the past four years, however, that figure has steadily climbed to 66 months -- five and a half years -- and there's no sign of it relenting. In fact, more than 25 percent of loans these days are for six years or longer.

Is it time to start worrying?

Optimists say no, arguing that Americans are still cautious about spending thanks to the Great Recession. Spreading out a car loan over a longer payback period makes it more affordable and minimizes the monthly burden.

Also, cars are built better than they once were, which is, in part, why the average American car is over 11 years old. Borrowers can take out a loan for five or six years and know that they've another five or six to drive it, without paying a note.

And it's worth mentioning that new cars are increasingly expensive -- above $30,000, on average. That means that more money to pay back, and many people want more time to do that.

Pessimists, however, would point out that our salaries aren't keeping pace with the price of cars: the latter grew nearly nine percent between 2009 and 2013, while salaries grew just four percent. That would suggest that some of us are taking on more debt than we can truly afford.

Have you taken out an auto loan recently? Did you consider taking a shorter or longer term? Share your thoughts and insights in the comments below. 

P.S. If you're planning to purchase a car in the near future and haven't lined up your loan yet, be sure to do so before visiting dealerships. Here's why.


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