Monthly Car Loan Payments Reach Record High
Jan 2nd, 2019 @ 10:55 PM by Amber Nelson
Consumers are paying more and more for their cars each month, according to data from Experian Automotive, and auto lenders are starting to feel the risks of those higher payments.
The average monthly loan payment for a new-vehicle rose to an all-time high of $530 in the 2018 third quarter, a 6% increase from the previous year. New-vehicle monthly lease payments increased to an average of $430, up 4% year-over-year. Used-car monthly loan payments also hit a new record high of $381, a 4% jump from a year ago.
Many auto lenders are starting to worry that such high monthly payments are unsustainable and are starting to be more selective in their lending. In the third quarter, only 21.2% of all new auto loans were made to those with subprime credit, a decline of 1.5% from the year before and the lowest share since 2008.
Because rising new-car prices and payments, more prime and super-prime credit borrowers are turning to used-car purchases. They accounted for more than half of all used-vehicle loans in the third quarter, the highest share in eight years.
Auto lenders are also putting the breaks on ultra-long car loan terms. During the third quarter, the average term on a new-vehicle loan fell to 68.5 months, down 0.5 months from a year earlier. In years past, lenders have extended out loan terms to keep monthly payments lower for borrowers, but that path has higher inherent risks. Because the loans are so long, it is likely that the vehicles will be less worth than the balance of the loans before they are paid in full. If a borrower should need to sell at that point, it would be impossible to find a buyer and the borrower may end up defaulting on the loan.
Some lenders have allowed these borrowers to roll their negative equity into a new purchase, meaning the borrower owes an even larger debt on a newer vehicle, making the cycle of being upside down in auto debt difficult to escape.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.