Last Updated: August 14, 2020
Are you getting a new vehicle?
You want a shiny, fast car and a loan…
Your dream car is just a car loan away, so to speak.
Owning a car has never been more simple!
Getting into long-term debt is also getting easier.
We gathered the most interesting car loan statistics for you to check out today!
Let’s have a quick look at the key auto loan statistics:
AMAZING Car Loan Statistics (Editor’s Pick):
- The average car loan amount is $26,162.
- The average car payment in America is $467.
- Currently, the average car loan length is 69 months.
- 85% of new cars in the US are financed, compared to 55.5% of used vehicles.
- Americans owe over $1.18 trillion for their cars and the total auto loan is rising every year.
- Banks finance over 30% of the US car loan market.
Automobile debt is here to stay (and grow). But is this a smart way to finance your car… or should you start growing your savings instead?
That depends on who you ask.
One thing is for sure, though, auto loans are looking more enticing than ever and Americans are taking advantage.
Now, let’s delve deeper into some mind-blowing auto loan statistics from the past years!
What Is the Average Car Loan?
The national average won’t apply to everybody.
It’s one thing to buy a used car with an excellent credit score. It a completely different story to finance a luxury vehicle with a freelancer’s salary.
The “auto loan bubble” won’t help you, if your FICO score is dreadful.
However, this is not the only thing that determines how much your car loan will cost:
1. The average new car loan rates are between 3.71 and 3.93%
(Source: Value Penguin)
Interest rates vary depending on what car you buy.
Because with age, vehicles tend to become less reliable.
The cheapest you can get is a 3.71% interest for a new car over 36 months.
Can’t manage to pay off a car in three years?
Longer periods do come at a higher price. The average APR for 48-month auto loans is 3.81%. 5-year car loans are the priciest with an average interest rate of 3.93%, while 72-month loans come with a typical rate of 3.78%
Think it doesn’t make a big difference?
You are probably right! We did the math:
Let’s say you took out a $26,162 (the average auto loan in America):
- If you pay it off in 36 months, you return $27,132.6
- Choose a 60-month period and that number jumps to $27,190.2
These calculations are based on the national averages (and on a mid-range car). The difference between the cheapest and the most expensive loan is a little under $60. And these savings are over the years!
At this price, you can get something along the lines of a Chevrolet Impala, a Buick Regal, or even a hybrid – the Hyundai Sonata and Honda Accord Hybrids are all in that price range!
Here’s the deal:
Decide on the period depending on what you can comfortably afford. The typical auto loan term in the US is six years. You’re not alone in needing a little longer to pay off your car, don’t worry.
2. The average US car payment is $467 slightly higher than in 2018.
The average car note has increased since last year. We are paying more per month for both used and new vehicles:
- In 2019, a new car would cost you $554 per month (an increase of 5.6% from last year).
- The average monthly used car payment is $391 (4.9% more than last year).
Yes, it’s getting more expensive to buy a car on borrowed money.
That said, the rates for car loans are consistently low and affordable. When you look at data from the past decade, you notice a steady decline.
It’s mostly because of the 2009 crisis. Loan rates decreased back then, as a means of encouraging people to spend and help the economy.
But what’s the point of offering cheap loans? Why would a bank/credit union do that?
Because financing institutions make money on the purchase, not the interest. Large car manufacturers even have “captive finance” arms (GM Financial, for example) and they exclusively offer loans for the parent company’s cars.
More people that can afford cars = more sales = bigger revenue.
3. The typical car loan length is 69 months.
Terms depend on the age of the car, remember? The older the vehicle, the more likely it is to fail within the next few years. It is also a lot less reliable car when compared to new models.
Financing an old vehicle means a higher interest rate AND a shorter car loan periods.
Again, this is because of car failure risk.
The average used car takes 65 months to pay off.
Car leasing, on the other hand, is the most short-term option. The average lease only lasts around three years!
4. Borrowers have an average credit score of 710.
The median credit score has never been higher. Ever since the Federal Reserve started collecting data on the auto loan industry (in 2000), the average credit score has been on the rise.
But here’s the kicker:
5. 30% of all automobile debt comes from buyers with 760+ credit scores.
This is a major change in tides. For years, car loan statistics would show growth coming from all sorts of borrowers. This year, subpar borrowers are being pushed out of the market, while buyers with great credit are the driving force.
Does this mean subpar borrowers no longer take out auto loans?
Credit inquiries and auto loans participation is at a record high. Yes, lenders are tightening their rules and increasing their rates for people with low credit scores. Even so:
6. Auto loan originations are at an all-time high – car loans are now the third biggest source of debt.
Americans want cars, that’s for sure. Only mortgages and student loans have larger loan balances. In December 2018, there were 2,190,827 originations, which is higher than in 2019.
We are taking out more loans and delinquency is remaining low.
So… good news, right?
On a surface level, absolutely. But here is the thing:
Car Loan Statistics Might Be… Lying?!?
No, I did not just make up the data in this article. You can look it up if you don’t trust me (the sources are all linked down below and freely available).
And yes, it’s true: on a surface level, USA auto loans are doing great.
Delinquency rates have been going down, remaining below 5% since 2010.
However, it turns out there are massive age and income group differences. Cars may be essential for the ‘American life’ but not everybody can afford them, even on borrowed money.
7. “Serious delinquency” – the failure to make your car payments for 90+ days, is at 4.74%
(Source: Center for Microeconomic Data)
This is much lower than student loans and credit cards. It’s all going great, right? The auto loan industry has never had better borrowers and delinquency rates are at a steady low!
But here’s the thing:
People aren’t struggling to make their car payments as much as they are with student loans. However, the delinquency rates are on the rise.
Subprime borrowers make up a large portion of this, according to car loan statistics.
8. If you’re under 30, you’re 50% more likely to default on your auto loan.
Young people are struggling to pay for their cars. Millennials are 50% more likely to fall into delinquency than their older counterparts.
But youngsters have always struggled financially, haven’t they?
It turns out that no, they have not.
Up until 2014, these rates were similar, regardless of your age. The fact that millennials increasingly can’t afford the USA car loans is indicative because car ownership is a key indicator of wealth.
Car owners make three times more than non-owners.
Vehicles are a financial burden for low-income families and a status symbol for upper-middle-class citizens. The average car loan monthly payment of $467 is way above the recommended maximum for low-income individuals and families.
(Side note: The US federal government considers low income to be between $11,490 and $22,865.10 for a single person and no more than $46,864.50 for a family of four.)
Speaking of which:
9. Middle-class families are most likely to ask for a loan
Middle America is the driving force behind the growth in the auto loan industry. Buyers with the best credit score take up the lion’s share of all automobile debt – middle-class folks are more likely to be in that group. Subpar borrowers, on the other hand, are struggling more than ever.
But income isn’t the only factor:
10. Gen X take out most car loans AND they have the highest loan balances.
Is this really surprising?
Gen X is more likely to have the credit for a purchase like this. They’ve had longer to make savings and see them grow. Even if Gen X may be the “sandwich generation” – taking care of their millennial kids and aging boomer parents, they are still better off financially than younger people and it shows.
The biggest chunk of car loans (59%) belongs to Gen X. Their car loan balances are also the highest, with an average of $18,741! To be fair, Millennials follow closely behind, while young adults or Gen Z, are the least likely to borrow money for a car.
Now that we know about the borrowers, let’s talk about the lenders:
Surprising Car Loan Industry Facts
Buyers can pick among a vast array of financing options – from good old banks to online lenders and even the car dealership itself.
You might be wondering:
Which is the best option for me?
It’s not a straightforward answer – it depends on your financial history, what you can afford right now, and what kind of car you’re aiming for.
However, car loan statistics are clear on one thing:
11. Banks finance the biggest number of car loans in America – 30.7% of the market.
They’re not as flexible or open-minded as credit unions but banks still hold the lion’s share of the car loan market.
The stats are different, depending on the car, though:
- 34.8% of Americans choose a bank to finance their purchase of a new car.
- 54.7% of used vehicles are purchased through captive financing.
In-house financing divisions offer loans for both new and certified pre-owned cars. They sometimes offer impossibly great deals – even 0% APR! Of course, these promotions aren’t an option for banks but they make good money for the manufacturer:
- 0% APR gets people in the door.
- It supercharges sales.
- Low or no-interest loans can help clear out old stock (maybe you’ve noticed that cars do take a lot of space)
Now, here’s the twist:
12. “Buy here, pay here” is the least popular financing option with only 26.6%.
With the “buy here, pay here” option, the dealership lends you the money for your car. It’s a one-stop solution that means you don’t have to deal with multiple parties – instead, your car dealership handles everything.
Well, people aren’t that convinced.
Just 26.6% of borrowers have opted for “Buy here, pay here” car financing.
- Car dealerships offer the highest interest rates.
- They often throw in extra fees.
- The fine print can contain some pretty… surprising rules and regulations.
There are some perks to dealership financing. It can open doors to much better car options for people with subpar credit. For instance, there is no minimum Tesla financing credit score!
“Buy here, pay here” is just another way for dealerships to make money. In fact, add-on services are emerging as a new income stream for them. F&I profit per vehicle is on the rise by up to 10%!
13. The car loan industry’s growth is at an all-time low.
Yes, there is still demand in the industry. But it’s nothing like it used to be!
According to average new car loan statistics, people are getting more and more cautious about auto debt. Following the surge of 2011, the lending industry’s growth has been stalling. Every year it drops by 3%. 2018 saw a 4.4% growth, which sounds great until you compare it with 2016’s impressive 8.6%.
We are waving goodbye to record sales. The demand is at a 10-year low:
14. Out of 74 banks surveyed, 25.5% reported a decrease in borrower demand!
Surely it must be good for some banks?
Yes, but just 7.6%.
The vast majority of financing institutions are noticing a drop in demand, compared to previous years. It’s clear that the boom of the early 2010s is coming to an end. But it has left a mark:
15. Automobile debt grew by 81% in the last decade.
In 2019, Americans owe $1.27 trillion for their cars. Compared to the first quarter of 2010, this is a $0.57 trillion increase or a growth of 81%!
With over-the-year growth dropping, though, we’re unlikely to see anything like this in the upcoming decade. Unless 2020 surprises us with some huge savings on car loans, the trend is towards lower interest and decreased growth.
Don’t get too worried about poor bankers, though. Some of them are doing splendidly:
16. Louisiana saw an 18% growth in auto loans, South Carolina follows closely with 17%.
The South is still enjoying massive growth.
Meanwhile, South Dakota registered a 23% reduction in auto loan volume.
I guess we can’t all win big, right?
The auto loan statistics are clear:
Americans still want to borrow money for a car, but not nearly as much as they did before.
With the stalled growth, we’re unlikely to see the same growth in car debt that we did in the past decade. The 30% growth in 2011 is a distant dream for most institutions.
Now, they are playing it safe and conservative. Prime borrowers are getting the best deals while people with bad credit have fewer options than ever. Young people are markedly less interested in car loans and they’re less likely to be able to afford them, too.
But there are more concerns:
Subprime auto lending is causing concern. So much so, that some call it the next housing crisis.
7 million Americans are 3 months behind on their car payments.
This is 1 million more than they were in 2010!
Loan performance is sliding and subprime borrowers are to blame. The difference becomes immediately clear when you compare delinquency rates among different credit score groups.
The question is:
Can it cause problems?
Some experts suspect it will. We are taking out more loans but are getting progressively worse at repaying them. This is exactly what happened before the “Great Recession” of 2008.
It gets worse:
In 2016, the average household could only pay for half of their car! 3 out of 4 Americans considered new vehicles to be unaffordable.
And yet, we see cars as more than a means of transportation – they are a status symbol. Large and expensive automobiles are flooding showrooms. With multiple financing opportunities, luxury vehicles are becoming available to more people.
But should they? Not if you can’t repay the money!
When this happens on a large scale, the risk of an economic crisis grows.
You might be asking yourself:
First of all, relax. Trying to predict a recession is nearly impossible. While some experts suggest that car loans will create problems for the economy, others claim the concerns are exaggerated.
Either way, the best way to protect yourself is to save more, spend less. Which means reduce your consumer debt for a more stable financial future.
The average car payment per month in America is $467, which is an increase compared to 2018. Interest rates are expected to grow so be wise about what you can afford:
- Typical monthly payments for a new car are $554.
- Used cars will set you back $391per month on average.
It all depends on how much you make. There are handy calculators online that can help you budget – like this one!
A general rule of thumb is no more than 10% of your monthly pay (after taxes).
Does this seem too low? An alternative approach is spending 50% of your take-home salary on necessities. Your car payment is one of them! Provided that you’re spending less elsewhere, you can increase your car loan budget and even finance several cars at the same time.
But make sure you have some job stability to be able to afford it in the long term!
Yup, this is a follow-up from the last question.
This means one car gets repossessed every 15 seconds or so.
It could happen to the best of us so plan your budget carefully (and ahead of time). You could possibly get a high-end car but your options might be limited.
69 months = 6+ years
You can expect less if you’re buying pre-owned, though. The average used car loan term length is 65 months. Bear in mind that banks might not offer to finance old cars for such long terms. This is why credit unions are the preferred option for used car buyers!
Ultimately, the decision to take out a loan, as well as the shopping around for the best deal, is up to you. If you want to be smart about it, though, remember to read the fine print and be brutally honest about your budget.
Different people have different needs, but if there is one thing car loan statistics of 2019 can teach you, it should be:
It’s not the time to be reckless with your automobile debt.
Good luck and I hope 2020 brings you a cool new car… One that you can surely afford!
See you around on SpendMeNot.com, guys!