Chart of the Week: New Car Loans

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Oct 08, 2019
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Chart of the Week, Purchase Decisions, Budgeting, Behavioral Finance

Summary: This chart shows the percentage of new car loans and the term of their loans (in months). 

Questions:

  • How would you summarize the trend in the length of new car loans over the past decade? Increasing or decreasing?
  • Which loan term has seen the sharpest increase in the past decade? 
  • What is the relationship between the term of the loan and the amount of the monthly payment?
    • The longer the loan term, the _______ the monthly payment. 
    • The _________ the loan term, the higher the monthly loan payment. 
  • If you wanted to pay the least amount of interest on a loan, you would choose a shorter/longer (choose one) loan term. 

Behind the chart (WSJ):

But the size of the average auto loan has grown by about a third over the past decade to $32,119 for a new car, according to Experian. To keep payments manageable, the car industry has taken to adding more months to the end of the loan.

The average loan stretches for roughly 69 months, a record. Some last much longer. In the first half of the year, 1.5% of auto loans for new vehicles had terms of 85 months or longer, according to Experian. Five years ago, these eight- and nine-year loans were practically nonexistent.

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Play the NGPF Arcade Game, Shady Sam, and your students will get a lesson on how to maximize profits as the loan shark. 

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.