Buyers of new and used cars are choosing to stretch their car loans out longer. The average length of a new car loan in the first quarter of this year was 67 months, and the average term for a used auto loan was 62 months, according to data from Experian Automotive. The company says these car loan lengths are "new all-time highs."
New-car buyers financed an average of $28,711 during the first quarter, which is up from $27,612 a year ago. Their average monthly payments were $488, which is also an increase from $474 a year ago.
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Melinda Zabritski, Experian’s senior director of automotive finance, says in a statement, "While longer term loans are growing, they do not necessarily represent an ominous sign for the market. Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank. However, it is critical for consumers to understand that if they take a long-term loan, they need to keep the car longer or could face negative equity should they choose to trade it in after only a few years."
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In addition to possibly having negative equity on your car, stretching your auto loan out over a longer period of time means you're paying more in interest than if you financed your car with a shorter car loan. Experian Automotive reports that the average new car interest rate was 4.71 percent in the first quarter, and 9.17 percent for used cars. These rates are both higher than a year ago, when the average new and used auto loan rates were 4.54 and 9.01 percent, respectively.
Experian's data shows that used car buyers are comfortable financing more to purchase their used car as well. In the first quarter, the average used auto loan amount was $18,213, which is an increase from $17,927 last year.
If you're on the fence about whether to buy or lease your next new vehicle, Experian says that leasing is on the upswing, and the percent of consumers leasing their new rides hit a "record high" as well. Of all new vehicles that were financed in the first quarter, 31.46 percent of those were leased, which is up from 30.22 percent last year. These buyers have monthly lease payments of $405, which, unlike the higher loan payments on new cars, is down from $412 a year ago.
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