New Car Buyer Monthly Payments Reach Record High
Jun 6th, 2018 @ 11:08 AM by Amber Nelson
Americans are paying more than ever for new cars, according to credit compiling firm Experian, and monthly payments have reach new heights, pushing affordability to record lows.
During the first quarter of 2018, the average auto loan for a new vehicle topped $31,455, up $921 from the year before. The average monthly payment on new car loans jumped $25 to $523, an all-time high.
Auto loan length for new cars is also rising. The average during the first quarter was 69 months or just over 5 ½ months. In order to keep monthly payments manageable for buyers, some lenders have even extended loans for up to 96-months or 8 years. By the end of that length most buyers will owe more than their vehicles are worth.
“The dream of owning a new vehicle is becoming more elusive to the average American,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions. “To reverse the trend, dealers and lenders need to better understand the data and explore different options to make new vehicle ownership accessible and appealing.”
Those in the middle and lower credit profiles are feeling the biggest effects of higher prices. The percentage of loans made to subprime buyers fell 8.4% while those to deep subprime consumers – those with the worst credit – dropped 14.1%. With their troubled credit pasts, these borrowers are representing a greater risk to auto lenders as prices rise. The average credit score for borrowers of new vehicle loans increased to 716 in the first quarter.
Perhaps because those with poor credit are being priced out of the market, 30-day delinquencies on car loans have fallen 3.1% to 1.9% in the 2018 first quarter and 60-day delinquencies were unchanged at 0.67%, near record lows.
“Traditionally, lenders’ risk tolerance has swung back and forth like a pendulum, and right now we’re seeing a more risk-averse side. But if payments continue to improve, we could see credit standards loosen,” Zabritski continued.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.