Auto buyers seem to feel comfortable taking on more debt, as a new report from Experian Automotive found that borrowers took out a record amount of loans during the first quarter of 2014. Experian found that the average monthly payment for a car loan rose to an all-time high of $474, a $15-a-month increase from the same time period last year.
Along with paying more for their automobiles each month, the report stated that 24.8 percent of auto loans last between six and seven years. This is the highest amount for six- and seven-year loans, but Melina Zabritski, Experian's senior director of automotive credit, said she is not surprised borrowers are going this route because it is helping make payments easier.
"Consumers are really relying on financing as the price of new vehicles continues to move higher," Zabritski said. "As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level."
Taking on more of the purchase price with a longer loan can reduce the minimum payments, but that may result in a higher overall amount for the loan. Of the 4.7 million loans that were written during the first quarter, the average came out to $27,612, an increase of $964 from a year ago. Zabritski went on to say that borrowers could have higher rates for these longer loans or could become upside-down if they want to trade their cars in.
"However, what they need to remember is that without good credit, it may be more difficult to get a lease, and that leases have mileage caps so they need to make sure their lifestyle fits the leasing requirements," Zabritski said.