Some financial experts are throwing up a red flag as buyers of new vehicles increasingly spread their payments out over longer periods of time. Data from Experian Automotive indicates that most new-car loans, 41.7 percent, are repaid over a period of 61 to 72 months. But the share of borrowers taking 73 to 84 months to pay for a new auto has jumped by more than 25 percent over the past year to now account for 19.5 percent of the market. Meanwhile, shorter-term loans of 25 to 36 months or 37 to 48 months are down by 24.7 percent and 2.4 percent, respectively.
With the cost of a new vehicle surging to more than $30,000 today from $25,703 in 2002, lower payments stretched over a longer period is the only affordable way for some borrowers to finance a new ride -- but at the cost of higher interest over the long term. A $28,000 car financed at 3.94 percent interest, for instance, will slash the monthly payment by about $250 over 84 months compared to 48 months; but the borrower will pay more than $1,770 in additional interest. Finance companies are accommodating buyers, which "scares" Adam Lee of Maine-based Lee Auto Malls. Lenders, however, say most of the customers seeking longer repayments have better credit and often resolve the debt before reaching the end of the loan term.