MADISON, Wis. (3/14/14)--For new-car buyers conforming to the growing trend in auto sales, it might be six years--or 72 months of car payments--before they own their vehicles outright.
As USA Today reported Wednesday, consumers have been selecting lengthier lease terms at a higher clip lately, with six-year loans--or longer--jumping 19% in the fourth quarter, to about 20% of all new vehicle loans.
Just last month about one-third of all new vehicle sales fell into the long-term loan category of 72 months or longer.
"Longer-term loans, coupled with the current low-interest rate environment, increases the affordability of new vehicles for consumers," said J.D. Power in a statement to ABA Banking Journal. "This is resulting in strong demand for new vehicles and also record transaction prices."
Auto loans in general have surged at credit unions recently as well, according to Steve Rick, Credit Union National Association senior economist. While overall loans rose 6% last year, new car loans almost doubled that number at 11.4%.
Leasing also has ramped up, as 26.5% of new car transactions last month were leases, according to J.D. Power's Power Information Network.
One explanation for this new trend in buyer preference could be the rising costs of new cars. The average amount a customer actually paid for a new vehicle last month was $32,319--2% more than last year, according to numbers reported by Kelley Blue Book.
But while these longer-term loans repackage higher price tags into what seem like more affordable deals, in the end, the longer terms leave buyers paying much more for their new rides than they're worth.
Car dealers, meanwhile, are directing the attention of consumers to the monthly payments, rather than total cost, so they can sell the most expensive vehicles possible, Mike Sante, managing editor of Interest.com, told USA Today.
Sante recommends limiting loan terms to four years and saving enough cash to put 20% down on new vehicle purchases.