Inflation and rising costs are impacting every sector. Vehicle purchases, in particular, plus insurance premiums and repairs, continue to become more expensive. The good news: People are still buying cars. The not-so-great news: cars are claiming greater shares of consumers’ budgets.
Inflation, high interest rates, unemployment, fintech competition, and rising delinquencies. There are so many factors compressing budget margins. Increasing loan terms are the evidence that backs this story.
Loan terms are trending longer
Experian’s recent State of Auto Finance Report reveals that the average loan term is now 69 months. After a brief slump, vehicle values are climbing again, resulting in loan terms trending longer.
Typically, a buyer chooses the length of their loan based on a monthly payment. Rather than choosing a different vehicle with a lower price point, a buyer will opt for a longer term to make the payment more manageable. The fact that loan terms are trending so long indicate that monthly payments are straining borrowers’ budgets.
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