Americans set a record for new car purchases in 2015, with nearly 17.5 million shiny vehicles rolling off dealer lots in 2015. Low interest rates, as well as low gas prices, certainly contributed to consumers getting behind new wheels.
But another, perhaps more dubious, achievement, was reached as well. Nearly 87 percent of new car purchases were financed, according to Experian Automotive. That's up from 80 percent five years ago. And most of those new car loans have terms longer than the typical five years. Six-year car loans are now the most common length for new car loans, comprising 43.5 percent of new car financing. And one-in-four new car loans may take as long as 7 years for owners to repay.
One likely reason for the lengthier car loans is that it helps to keep monthly payments down. The average monthly payment on a new car loan is $482 today, not much more than the $470 average payment a year ago. But the average amount financed has increased at a greater rate: the average loan of $29,000 for a new car is 4.5 percent greater than a year ago.
But there are pitfalls to longer auto loans. While lower monthly payments may seem appealing, the interest rate you pay will be likely be higher than if you had a shorter loan. You will also pay more for the car over the life of the loan. And when the time comes to sell your car, the value of the car will have fallen more than if you had paid off the loan earlier and sold the car.
Copyright © 2005-2016 Consumers Union of U.S., Inc. No reproduction, in whole or in part, without written permission. Consumer Reports has no relationship with any advertisers on this site.