In the United States, as new car prices continue to rise, auto loan terms are lengthening as well. With cases now exceeding 100 months, consumers' interest burdens are growing.
According to Kelley Blue Book on the 27th (local time), the average price of a new car in the United States this fall surpassed $50,000 (about 72 million won). Compared with early 2020 at the outset of the COVID-19 pandemic, when the average new car price was below $38,000 (about 55 million won), prices have climbed more than 30% in just five years.
David Kelleher, who runs a Jeep dealership in Glen Mills, Pennsylvania, said many U.S. households are finding it hard to afford new car payments lately, adding, "The era of paying $300 (about 430,000 won) a month for a new car is over."
Despite the steep rise in vehicle prices, demand for new cars remains. The Wall Street Journal (WSJ) reported, "With supply chains shattered by the COVID-19 pandemic and dealer inventories depleted, consumers who had delayed purchases now need new cars," adding, "Some buyers with extra cash opted for high-end vehicles at far higher price points than before."
This price surge is changing how people buy new cars. Market research firm J.D. Power estimates that as of November, the average monthly payment for a new car is $760 (about 1.1 million won). Industry officials said that as a result, auto loan terms that were typically 48 to 60 months have recently stretched to 72 months or more.
In fact, data from credit bureau Experian show that in the third quarter of this year, one-third of all new car buyers used long-term loans of at least six years (72 months). A year earlier, 29% of buyers used such loans. The share of ultra-long loans with terms of 85 to 96 months (up to eight years) also rose to 1.61% of the total as of October this year. In particular, for full-size pickup trucks, some loans are reaching 100 months.
Longer new car loans are also weighing on U.S. household liabilities. According to the Federal Reserve Bank of New York, as of the third quarter of this year, the outstanding loan balance for U.S. auto loans was $1.66 trillion (about 2,399 trillion won), up about $300 billion (about 434 trillion won) from five years ago. With the added burden of new car installments, auto loan arrears are trending higher. Earlier, credit rater Fitch Ratings said the share of subprime auto loans delinquent for 60 days or more this year topped 6%, a record high.
Michael Douglas, head of retail and consumer at JPMorgan Chase Auto, said customers are borrowing larger amounts to cover car purchases, and the average amount of new auto loans this year has exceeded $42,000 (about 60.69 million won). He advised, "When deciding on the loan term, it's important to consider not only the purchase price of the new car but also the total cost of owning the vehicle."
However, as automakers focus production on ever higher-priced lineups, the burden on consumers is growing. Heath Byrd, chief financial officer (CFO) of Sonic Automotive, said, "We are not making models with price tags under $30,000 (about 43.35 million won)," adding, "Until buyers have better options, the vehicle affordability problem will get worse."
The U.S. government has finally stepped in to stabilize vehicle prices. President Donald Trump recently directed federal regulators to open the door to deregulation for automakers seeking to sell small, low-cost vehicles in the United States that do not meet current federal safety standards. He said on his social media, Truth Social, "I approved making very small cars (TINY CARS) in the U.S."