Consumers are borrowing more to buy a set of wheels. An Experian report shows the average loan for a new vehicle hit a record $32,187 in the first quarter of 2019, while the average monthly loan payment for a new vehicle rose to $554, up from $523 a year before.
And people aren’t just taking out larger loans for new cars. The average loan taken out for a used vehicle rose to a record $20,137, making the average monthly loan payment for a used car $391.
Average monthly auto loan payments have been on the rise since early 2014.
As vehicle prices rise, a greater percentage of borrowers are opting for auto loans for used vehicles — even those who have higher credit scores, according to Experian’s data.
What can you do if you’re in the market for a vehicle?
It’s no secret that Americans are taking on more auto loan debt. The Federal Reserve Bank of New York recently reported that auto loan debt hit a record $1.28 trillion in the first quarter of 2019.
If you’re in the market for a new or used vehicle, rising debt levels might have you worried. But arming yourself with knowledge about auto loans before you visit the dealership can set you up for car-buying success. Here are some tips.
- Understand how car loans work: If you’re a younger borrower or have credit that needs work, it’s a good idea to do some research on the basics of car loans before you buy.
- Determine what kind of auto loan you need: If you choose the right loan for your situation, you may be able to save money, get a car that works for you and keep growing a healthy credit profile. The Consumer Financial Protection Bureau has information on auto loans that can help.
- Shop around for the best auto loan rate for you: Before you walk into a dealership, shop around for a loan. You might be able to find a loan with terms you like ahead of time and apply for preapproval. If you’re preapproved, you can use a letter from the lender as a bargaining chip at the dealership. But remember: Preapproval is not a guarantee of loan approval. You’ll have to submit a formal loan application, and the terms you’re offered can be different from the terms you were preapproved for.