That higher seating position also comes at a higher cost.
For those among us who still treasure a three-box sedan, it's perhaps frustrating to see more and more of them get discarded in favor of crossovers and SUVs. Earlier this year, Volvo reported that the vast majority of all its sales were for SUVs like the XC60 and XC40. Toyota has just teased a new crossover despite the fact that it already sells seven of them in the US. Together with the continued dominance of trucks like the Ford F-150, it spells doom for sedans.
A new study by Experian now indicates that in the first quarter of this year, Americans chose to borrow more money for longer terms to get behind the wheel of expensive SUVs and trucks.
Not only are loans longer but more is being spent on buying a new car. The average amount financed for the purchase of a new vehicle increased to $35,392 in Q1, up from $33,833 in the same quarter in 2020. The number of vehicle loans that extended beyond 72 months also increased from just below 32% to over 35%.
Together with the fact that 56% of new vehicles bought in Q1 were SUVs and just 17% were trucks, it's clear that consumers are willing to borrow more money and for a longer duration to purchase vehicles in these segments. While this may lead you to assume a pattern of more careless spending, it's not all bad news based on the credit records of car buyers.
The average credit scores for car buyers in Q1 increased to 663 and the share of those with sub-prime credit scores declined to just over 17%, which is a record low. The longer loan terms used to be a concern but there were fewer borrowers behind on payments in the latest assessed quarter.
"Consumers are increasingly purchasing SUVs, CUVs, and pickups," said Melinda Zabritski, senior director of automotive financial solutions at Experian. "It's driving loan amounts up and payments up." Despite this, she said that presently there is no cause for alarm in the industry based on Experian's findings.