Consumers Are Borrowing More Money to Drive Expensive Vehicles
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New cars, used cars, and gas, are all among the list of things that have seen dramatically increased costs over the COVID-19 pandemic. As the auto industry starts to recover, you might also see car insurance rates starting to rise again.
In addition to these changes in the industry, NBC News reported that consumers are borrowing more money for longer periods so they can drive larger vehicles like trucks and SUVs. But, this isn’t as bad as it may sound.
Auto financing trends in early 2021
NBC News reported on data from an Experian study of auto credit market trends. The increase of consumers purchasing more expensive SUVs, crossover utility vehicles (CUVs), and pickups are driving up the loan periods, payments, and amounts. However, the study also found that on average, in the first quarter of 2021, credit scores are higher for consumers financing new and used vehicles.
In 2021, the percentage of loan periods longer than 72 months rose to 35%—up from 32% during the same period in 2020. In the first three months of this year, over 56% of new vehicles being financed were SUVs, and 17% were pickup trucks. The average amount financed increased from $33,833 last year to $35,392 in early 2021.
Credit scores are higher on average
Experian finds that borrowers have improved their credit profile, with the average used car buyer having a prime credit rating of 663. The data also shows a record low of consumers with subprime scores at slightly over 17%.
Less consumers are defaulting on auto loans (falling 60 days or more behind on payments). The study said that these are all good signs, and indicate a healthy auto credit market. Although the idea of increased loan payments seems worrying, the data suggests that car owners taking on these loans can afford and manage them.
What else can consumers learn from this data?
The cost of vehicle ownership includes more than an auto loan payment. You should factor in other costs from things like routine maintenance and car insurance before you make a car purchase. Your credit score can affect both your car financing terms, and your insurance rates.
Insurance companies see people with better credit as less risky, and less likely to file an insurance claim. If you’re responsible with your credit, they think you can probably be trusted to take care of your car.
If you want the best deal and lowest cost of car ownership, it’s a good idea to protect your credit score by making timely payments on your credit cards, bills, and other loans. If you want to save more money on car insurance, Jerry can help. The free AI-powered app can provide you with competitive quotes in under a minute.