Canadian auto industry continues to see unprecedented sales numbers on new cars, with the boom being particularly pronounced in 2013 and 2014.
The main reason for this surge is the extension on traditional loan terms. According to the data published just a few weeks ago by J.D. Power & Associates, the average loan term in Canada is 74 months or more – which is six months longer than the average in the United States.
Experts say that, as a result, many consumers are now willing to purchase expensive crossovers or trucks, allowing the average car loan value to increase 12.5 per cent to $31,450 since 2010. Meanwhile, the average monthly payment has gone up 3.5 per cent to $544.
The U.S. seems to be in the same situation, though the boom is not quite as significant down there. According to research company Experian Automotive, the average loan in the U.S. is 66 months – or five and a half years.
The Experian data also shows that the average financed amount in the country is around $27,799 – which is a four-per-cent increase year-on-year in the third quarter. As a result, the average monthly fee in U.S. is now $470.
The big question here is whether any of these numbers are a good thing or not. Having longer loan terms means that previously unaffordable vehicles can suddenly become affordable, but that also means that consumers would rather purchase more expensive vehicles instead of settling for something cheaper. If you’re one of those people, you can learn how to lower the price of your new vehicle right here.
In addition, experts warn of a higher risk factor associated with long-term loans – for lenders and consumers alike. When a loan is six or seven years long, it takes more time for the consumer to reach the point when they owe less than the car is worth, which can result in “negative equity.” It makes trading in or selling a car more difficult, if the consumer is suddenly unable to pay off their debt.
If you want to find out how a loan term can impact your car payment, configure your vehicle with Unhaggle’s free dealer cost report and get a complete price breakdown.