WASHINGTON — In a trend that isn’t expected to let up in the new year, the cost of buying a new car in the United States has surged since the pandemic, leading in some cases to auto loan terms of as much as 100 months as consumers seek to keep payments affordable, according to a new report.
Prices for new cars and trucks are up about 33% since 2020, and the average sticker price topped $50,000 this fall, up from less than $38,000 before the pandemic, according to Kelley Blue Book cited by the Wall Street Journal. The CU Daily had reporting here earlier on the increasing number of borrowers turning to 84-month terms, with $1,000-plus payments each month becoming the new normal for many.
The J.D. Power data shows the average monthly payment was $760 in November, according to J.D. Power.
“To manage those costs, buyers are increasingly stretching out loan terms well beyond the traditional four to five years,” the Journal reported. “In the third quarter, about one-third of all new-car buyers took out loans lasting at least 72 months, up from 29% a year earlier, according to data from Experian. Loans lasting as long as eight years — and in some cases more than 100 months — are becoming more common, particularly for large pickup trucks.”
Bigger Debts, Longer Terms
The Journal said in its analysis that the growing reliance on longer loans highlights how Americans are carrying larger debt loads for longer periods. Total auto loan balances reached $1.66 trillion in the third quarter, about $300 billion more than five years ago, according to the Federal Reserve Bank of New York.
“At the same time, elevated interest rates and persistent inflation are squeezing household budgets, contributing to a rise in missed car payments,” the report added.
Industry executives told the Journal that affordability has become a central challenge, with Heath Byrd, chief financial officer of dealership chain Sonic Automotive, told investors that automakers offer few options priced below $30,000, limiting choices for cost-conscious buyers.
“There aren’t $300 monthly payments anymore,” Byrd was quoted as saying. “It’s a real concern.”
Automakers Respond
Some automakers are responding, the Journal reported. Ford said buyers have been gravitating toward lower-priced base models, with sales of its entry-level Maverick pickup jumping 76% in November. Jeep has cut prices on many models, pushing more of its lineup below $50,000 and helping lift quarterly sales by 11%.
Even so, longer loans come at a cost. Michael Douglas, head of retail auto lending at Chase Auto, said the average new-car loan now exceeds $42,000. While extended terms reduce monthly payments, they significantly increase total interest paid over time, he told the Journal.
He added a message that is often shared by many credit unions.
“For consumers, it’s important to consider the total cost of ownership, not just the payment at purchase,” Douglas said.
