Aug 07, 2013 Philip Burgess
Typically, auto loans don't stretch 72 months, but more consumers and lenders are starting to turn to longterm auto loans to fund vehicle purchases. As the economy recovers and consumer credit reports start to improve, lenders are becoming more willing to extend such loan lengths that have previously been rare.
According to The Los Angeles Times, the standard length for a car loan in America has been increasing steadily for the last year or so. With automakers creating more quality vehicles that last longer, lenders have started to adapt their products to better serve the market.
The source noted that J.D. Power and Associates data showed that loans of more than six years account for 30 percent of all car financing contracts taken out in 2013.
The extended loans may appear to many as being riskier for lenders and automakers. However, relatively low interest rates and a return to solid consumer finance has created a market in which it's viable to offer such longterm loans. Also, the source indicated that most vehicle lending defaults happen within the first six months of a loan being taken out, showing that longterm products aren't necessarily a riskier proposition.
According to Bankrate, the current average rate for a 60-month car loan is 4.09 percent, less than the 4.67 percent rate for a 36-month loan.
Overall, the robust auto market has allowed many consumers to purchase new cars, a good sign for automakers who that benefit from the boom. Also, it's a sign that buyers have more available income to spend, as the number of used car sales has shrunk, the source reported. In fact, the average cost for a used vehicle has dropped 6 percent from a May 2011 peak, a direct result of the resurgent new vehicle transactions seen across the country.