DETROIT (WWJ) – Picture this — you’re driving your brand new car to drop off your first-grader to school — by the time you’ve paid that car off — your child will be nearing high school.
Melinda Zabritski senior director for Experian says 40 percent of loans are now for six-years, some are hitting seven and a handful tipping in the eight year range.
With the average monthly car payment now in the $500 range — the way for many to afford the new vehicle they want is to stretch out those payments.
“Typically what you will see is when the other traditional banks pull back — there might be fewer options among the traditional banks but there will be options in the specialty lenders,” says Zabritski.
It’s nothing to be alarmed about she says, but a market that opened itself up to too many subprime loans is starting to correct itself. She says that could mean buyers may have to look a little bit harder to get credit.
[Subprime loans — are loans made to people who may have fair or poor credit — based on irregular repayments on loans which may include borrowing for cars, houses, or other extended credit. They are often at a higher interest rate and less favorable terms — because they are viewed as being at greater risk of defaulting on the loan.]
“It’s appealing when you look at the impact it has on that monthly payment by taking out the longer term loan — but you want to make sure that you’ll be in that car for as long as you need to — in order to get into a right side point,” she says.
Leasing is also growing as a way to keep payments down – with leases now accounting for about 30 percent of the car transactions.
Want to avoid monthly payments altogether? Pay cash. Those saving up and paying with cash are able to pocket the interest and fees that would otherwise be paid by taking out a loan.