The latest sales figures in US auto sales for November reveal a surge in stretched out auto loans. This marks a distinct shift, as longer loans were originally considered a poor choice for borrowers, leaving the vehicle owner indebted for years before finally exiting a negative equity scenario. The proportion of longer auto loans has jumped 8.05%, YoY, in 3Q 2015, with more than a quarter of all auto loans now stretching out more than six years. However, as vehicle prices rise, US consumers are struggling to keep monthly payments affordable by taking out longer-term loans, or relying on lease deals, which usually hold monthly payments lower than a comparable loan. Also, data shows automakers are sustaining record transaction prices for new vehicles with these stretch out loans for less credit-worthy customers, igniting concerns of further risk. These factors have resulted in an increase in leasing for those consumers looking to maintain a more affordable monthly payment, however, credit monitoring company, Experian, warns "consumers must be aware of leasing provisions, such as mileage caps, that can greatly increase costs". Furthermore, with the number of cars returning from leases expected to double by 2017, analysts predict this could put downward pressure on used vehicle prices, with shoppers having to borrow more money as their trade-in value declines.
The latest sales figures in US auto sales for November reveal a surge in stretched out auto loans. This marks a distinct shift, as longer loans were originally considered a poor choice for borrowers, leaving the vehicle owner indebted for years before finally exiting a negative equity scenario. The proportion of longer auto loans has jumped 17.1%, YoY, in 3Q 2015, with more than a quarter of all auto loans now stretching out more than six years. However, as vehicle prices rise, US consumers are struggling to keep monthly payments affordable by taking out longer-term loans, or relying on lease deals, which usually hold monthly payments lower than a comparable loan. Also, data shows automakers are sustaining record transaction prices for new vehicles with these stretch out loans for less credit-worthy customers, igniting concerns of further risk. These factors have resulted in an increase in leasing for those consumers looking to maintain a more affordable monthly payment, however, credit monitoring company, Experian, warns "consumers must be aware of leasing provisions, such as mileage caps, that can greatly increase costs". Furthermore, with the number of cars returning from leases expected to double by 2017, analysts predict this could put downward pressure on used vehicle prices, with shoppers having to borrow more money as their trade-in value declines.