US Auto Loan Terms Stretch to Record Lengths Amid Affordability Crisis

New data reveals a significant shift in the US automotive market, with 22.9% of new-car purchases in the first quarter involving loans of at least seven years. This represents a sharp increase from 21.2% a year ago and a dramatic rise from 10% a decade ago, suggesting that buyers are stretching repayment terms to maintain manageable monthly payments. The trend is driven by a combination of escalating vehicle costs and stubborn inflation. The average sticker price for a new car reached $51,456 in March, marking the 12th consecutive month that prices have remained above the $50,000 threshold. Consequently, the average amount financed climbed to a record $43,899 in the first quarter. Inflationary pressures remain a significant headwind for the average consumer. The Consumer Price Index rose 3.3% in March, up from 2.4% in February, squeezing household budgets. This has shifted the buyer demographic; the share of new-car purchasers earning under $100,000 dropped to 37% last year, down from 50% in 2020. Financial analysts warn that these extended loan terms significantly increase the risk of 'negative equity,' where the loan balance exceeds the vehicle's market value. With new cars typically losing about 20% of their value in the first year and 55% over five years, borrowers opting for 84-month terms are more likely to be 'underwater.' This often leads to a cycle of debt where negative equity is rolled into subsequent loans, further increasing the total amount financed.