The longer loan terms reflect not only a trend of
people seeking a way to offset paying for costlier
trucks and SUVs but also inflated prices due to a
nationwide vehicle shortage. At today’s car prices,
the old rule of thumb is not only being ignored
but is also unattainable for most Americans.
“Shrunken inventory continues to wreak havoc
on both the new and used vehicle markets,” said
Jessica Caldwell, Executive Director of insights.
“Shoppers who can actually get their hands on
a vehicle are committing to never-before-seen
average payments and loan terms.”
In March, 73.4% of financed loans were above 60
months. The most common term was 72 months,
followed closely by an 84-month loan. The trend
is worse for used car loans. Just over 80% of used
car loan terms were over 60 months, with 72
months the most common term.
A longer loan has the carrot on the stick of a
more palatable monthly payment, but it comes
with a number of drawbacks.
HIGHER INTEREST CHARGES
The longer the term, the more interest you
will pay on the loan, both in terms of the rate
itself and the finance charges over time. Let’s
take a look at how the numbers change on
two loans that are on opposite ends of the
financial spectrum.
The average loan amount for a new car in the
first quarter of 2022 was $39,340. If we went
with the recommended 48-month term, it would
have an average interest rate of 1.9% in March
- The finance charges over the life of the
loan would be $1,545, giving you a staggering