The recent trend toward longer auto loans is reversing, a new study suggests.
The average loan term for both new- and used-vehicle purchases declined in the first half of 2009, reports the research firm Experian Automotive.
"For at least the last year, we've seen drops in terms," says Melinda Zabritski, Experian's director of automotive credit. "While there were still instances of longer terms, the overall averages were staying near 60 months."
The Experian study shows that in the first half of this year, the average loan maturity for new-vehicle purchases was 62 months, down from 63 months in the first half of 2008.
For used-vehicle purchases, the average maturity was 57 months, down from 59 months in the first half of last year.
The decline occurred even though auto leases are less available than they were early last year and despite consumers' growing budget-consciousness during the recession.
Consumers often resort to extended loan terms to lower their monthly payments because stretching the payment over a longer period makes the monthly payments easier to afford.
Lease contracts also lower monthly payments because the payments are based only on the partial value of the vehicle during the term of the lease.
In recent years, loans of 72 months and longer had become more popular. Those lengthier loans can keep customers out of the car market longer because when they extend the term, it takes more time to build equity in their vehicles.
"I'd say that it's not necessarily a result of consumers not wanting them but rather many lenders not offering the long, extended-term loans," Zabritski says. "Many lenders, including the captives, have stuck with 60-month terms. Especially on higher risk loans, you see the shorter terms as a norm."