No one can afford new cars, so they have to finance.
Buying a new car is more expensive than ever, and many people have been completely priced out of the market. Since people can't afford new cars, they are forced to get a loan that they may not be able to pay back. The auto loan industry is at an all-time high and Automotive News reports that outstanding loan balances in the US are now over $1.1 trillion. Luckily, the 7.1 percent increase in loans came from prime loans as sub prime and deep subprime loan originations actually decreased to 18.4 percent of new loans (down from 19.3).
Subprime loans are issued with high interest rates to people with poor credit. Even though subprime loan originations have decreased, the overall market share of these loans has increased from 17.9 to 19.1 percent. Prime loans and leases still dominate the market with a 39.4 percent share of the market. Consumers tend to aim for a lower payment rather than focus on how long the loan is for. This has caused people to stretch out their loan term. The average new car loan term in the second quarter of 2017 was 68.8 months, which is two weeks longer than in 2016. The average used car loan was 63.98, one week longer than 2016.
Even though people are extending their loans to 85-87 months in some cases, the average monthly payment has still risen. The average loan price for new cars is now $504 and the average loan for used cars is now $365. Average lease prices have also risen slightly to $412 per month. We hope that this increase in loans doesn't end up in a bubble like the housing market back in 2008. Our advice is to take out as short of a loan as you can afford and don't stretch into a car that you can't really afford.