2 minutes
Longer loan terms mean more affordable payments.
Sponsored by SWBC
Long-term auto loans have become increasingly more appealing to consumers. With higher sticker prices on vehicles that have more and more expensive features, a longer loan term means a more affordable monthly payment.
According to data from Experian, average car loan amounts are at a record high. For new cars, the typical loan is now above $30,000; the average used car loan is $19,329. Borrowers are also staying in debt longer, with 72 percent of new car loans and 59 percent of used car loans having terms of more than five years.
With these low monthly payments making slow progress on paying down the principal on these loans, rolling negative equity into a trade in is common when the time comes for a new vehicle. The significant depreciation of new vehicles doesn’t help. According to Edmonds, a new car loses 11 percent of its value as soon as it leaves the lot.
Financial institutions looking to stay on top of the latest car buying trends should be ready to help consumers balance their desire for low monthly payments with smart buying decisions to protect against potential future financial pitfalls. The addition of such products as gap protection, warranty, credit life and disability, and depreciation protection can help manage the consumer’s risk when carrying these long-term auto loans. When offered by a financial institution, these point-of-sale products are fairly low cost to borrowers and can provide them exceptional protection against the potential loss of the vehicle to accident or theft; potential life-changing events, such as unemployment or disability; or breakdown or damage.
Borrowers are tied to their vehicles for longer terms, based on a variety of reasons from need to want. As lenders, identifying how these trends can affect the borrower in the near and long term can provide an opportunity to educate the borrower and deliver the products and services that will help ensure their financial well-being for years to come.
Crystal Bullard is manager of business development for CUES Supplier member SWBC, San Antonio, Texas. Learn how you can boost your auto lending portfolio and reach millions of new consumers with an online and mobile direct-lending platform.
Also by Bullard on CUES Skybox: “Mobile Auto Loans Are the Way of the Future.”
