The trend comes as more Americans are falling behind on their car payments.
SACRAMENTO, Calif. — Sticker shock is hitting car buyers hard, especially at the dealership.
New research shows car prices are reaching record highs, forcing many buyers to consider longer loan terms, some stretching to 100 months.
“Part of what’s going on is cars are just getting more expensive,” said Derek Stimel, an associate teaching professor of economics at UC Davis.
New car owners are facing record prices at a time when the overall cost of living is becoming harder to manage. According to credit reporting bureau Experian, average monthly car payments are now about $750. Kelley Blue Book reports new car prices are holding steady at an average of $50,000.
“Manufacturing costs have risen, there’s also just sort of a preference for bigger, more expensive cars,” Stimel said.
Traditionally, car loans ranged from 48 to 60 months. But Experian says a third of car buyers last year took out loans lasting 72 months, or six years. Some buyers are going even further, pushing loan terms to 100 months, or more than eight years.
Stimel said those longer loans can signal financial strain for many households.
“It’s a little bit concerning, right, because I think you kind of have sort of two completely different things going on,” he said. “On the one hand, there’s sort of a, you know, upper income spectrum who pretty much just shrug their shoulders. But for people who are a little bit on the lower end or even the middle end of the income spectrum I think we’re seeing a lot about just how thin they are stretched.”
The trend comes as more Americans are falling behind on their car payments, while the price of new cars and trucks has increased 33% since 2020, according to The Wall Street Journal.
Stimel cautioned that longer loan terms usually mean paying more interest over time compared with shorter loans.
“Focus a little bit more on the out the door price of the car rather than the monthly payment,” he said, adding that the total price ultimately has the biggest impact on whether a buyer can afford a vehicle.
He also recommends having a financing plan in place before heading to the dealership.
Asked whether the days of $200 to $300 monthly car payments are over, Stimel said they are “probably gone unless somebody really wants to put like a huge down payment on a car.”
Another reason to avoid long-term loans, he said, is how quickly cars lose value. To keep prices down, Stimel suggests skipping add-ons or higher-end trim packages.
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