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As auto costs soar, extra consumers take out 6½- and 7-year loans

A pair inspects the Monroney sticker on a Ford automobile on the Helfman Ford dealership on October 28, 2021 in Houston, Texas.

Brandon Bell | Getty Pictures

The surge in auto costs within the second half of 2021 has pushed extra customers to take out auto loans that stretch past six years, in accordance with a brand new report analyzing how tens of millions of customers finance the automobiles they’ve bought.  

Credit score monitoring service Experian, which analyzes new and used automobile loans, says greater than a 3rd of all new automobiles purchased within the fourth quarter had been financed with loans which have phrases of six-and-a-half, seven and even seven-and-a-half years.  

Longer mortgage phrases are a technique auto consumers try to offset a spike in new and used automobile costs sparked by the low stock of latest automobiles and vans.  

“The uptick (in mortgage quantities) shouldn’t be solely attributed to stock shortages, it is partly as a result of customers merely shopping for bigger automobiles,” mentioned Melinda Zabritski, senior director of vehicle monetary options for Experian.

Within the fourth quarter, the common quantity financed for a brand new automobile mortgage jumped $4,300 in contrast with the identical time in 2020, hitting an all-time excessive of $39,721. Whereas customers have tried to decrease their funds by taking out loans with longer phrases, the common month-to-month fee nonetheless elevated $65 to a document excessive of $644.

The numbers are the most recent indication robust demand and low inventories have mixed to drive auto costs a lot larger. “What I feel you might be seeing is the overall carry from the heavy discounting in 2018 and 2019,” AutoNation CEO Mike Manley instructed CNBC after the auto seller reported very robust fourth-quarter earnings. 

Increased mortgage quantities and month-to-month funds should not simply restricted to new automobiles. Experian says used automobile costs and loans climbed to a document excessive with the common quantity borrowed in fourth quarter reaching $27,291, a rise of 20%.  The typical month-to-month mortgage fee is now $488, a document excessive in accordance with Experian. 

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