The ongoing trends of more leases and longer loans show no signs of stopping in Experian Automotive’s third-quarter 2015 analysis of auto financing. Buyers continue to search for ways to lower their monthly payment on more expensive models, even if that means extending the bill over prolonged periods of time.
Lease rates reached a record of about 27 percent of all new vehicle transactions, which was a big boost from the 24.7 percent last year. Average monthly payments remained steady at $398 – just $1 more than third quarter 2014. “As the price for a new or used vehicle continues to rise, leasing has become a more viable financing option for consumers looking to maintain an affordable monthly payment,” Melinda Zabritski, Experian’s senior director of automotive finance, said in the study.
Many of the figures for auto loans continued their march upward, but buyers’ average credit score dropped to 710 – the lowest number since third quarter 2007. The average amount that a person financed on a new vehicle rose to $28,936 , which was an increase of $1,137 from the same period in 2014. To pay off the larger sum, 44 percent of these buyers had a loan between 61 and 72 months – an all-time record. Financing for 73 to 84 months also reached a quarterly record of 27.5 percent. The value of these outstanding notes achieved a record $886 billion at the end of last year.
Automakers reap many of the rewards of these larger, longer loans because they’re responsible for a significant portion of new vehicle financing. According to Experian, the lenders that the companies own financed 51.6 percent of models during the third quarter versus 36.8 percent in the same quarter of 2011.
As much as automakers like the interest charges of longer term loans, it is actually shortsighted, too. Longer term loans also keep people from trading sooner than they would like. The longer the loan, the harder it is to get out of a car, so keep that in mind.