About one-third of auto loans for new vehicles taken in the first half of 2019 had terms longer than six years, according to credit-reporting firm Experian PLC.
A decade ago, that number was less than 10%.
Car loans with increasingly longer repayment terms are a pronounced sign that some American middle-class buyers can’t afford a middle-class lifestyle, The Wall Street Journal reports.
Incomes have risen at a sluggish pace in the past decade, but car prices have grown rapidly. New technological and safety features, such as larger and more sophisticated multimedia displays, have made even the most basic cars more expensive.
Americans have been borrowing to buy their cars for decades, but auto debt has swelled since the financial crisis. This increase came from low-interest rates as automakers emerged from the recession, making it easier to finance cars. Loans made to buyers were snapped up by Wall Street investors looking for returns as income from supersafe Treasurys drifted toward zero.
The combination of rock-bottom rates and yield-hungry investors helped bring the U.S. auto industry back to life. By 2015, auto sales had reached records.
For many Americans, the availability of loans with longer terms has created an illusion of affordability. It has helped fuel car purchases that would have been out of reach with three-, five- or even six-year loans.
“People can get into very expensive cars,” said Bronson Argyle, a professor at Brigham Young University in Provo, Utah, whose research focuses on consumer credit. “Households are taking on, on average, more risk.” Read the full story.
