RSSForty-two percent of auto loans made in the last year carried a payback term of six years or more, compared to just 26 percent in 2009, according to a report from the Consumer Financial Protection Bureau.
The growth of these longer-term loans has largely come at the expense of five-year loans, which declined over the same period. The CFPB found that six-year auto loans are riskier—they cost more, are used by consumers with lower credit scores to finance larger amounts, and have higher rates of default, the bureau said.
Auto loans are the third largest category of household debt for American consumers, behind mortgages and student loans, with almost 100 million auto loans outstanding totaling more than $1 trillion. For consumers who do not purchase a home, an auto loan may be the largest debt they will ever have to pay back.
More than 90 percent of American households have a vehicle. And consumers obtain financing to purchase 86 percent of new vehicles and 53 percent of used vehicles. In the United States, the average length of ownership of a vehicle is approximately 6.5 years. This means that many consumers might still owe on loans after they are no longer driving the vehicle with the increase in longer-term loans.
“The move to longer-term auto loans is opening up more risk for consumers,” said CFPB Director Richard Cordray. “These loans are more expensive and can result in consumers continuing to owe even after they are no longer driving their car. Consumers should know before they owe and shop for the best deal based on costs incurred over the life of the loan.”
The report comes from the Bureau’s Consumer Credit Trends dashboard with data from one of the three major credit reporting bureaus.
