As people pay more for new cars, they are also taking longer to pay their car loans back.
Over the past four years, the average price of a new automobile has jumped $3,000, to $31,000. In order to accommodate car buyers in a still-shaky economy, lenders have extended the length of time borrowers have to repay the loans, the Wall Street Journal notes.
The average term of a car loan hit a record 65 months at the end of last year. But some car loans now extend as long as 97 months.
In fact, auto loans with terms between 73 and 84 months have risen from 11% of all car loans four years ago, to 17% by the last quarter of 2012.
While longer terms give borrowers more time to pay — and keep monthly payments on increasingly costly cars low — they do come with a downside. It takes longer for a borrower to escape negative equity on their vehicles, which can lead to problems if they want to sell the vehicle.
Longer loan terms may also encourage buyers to hold on to their vehicles for a greater period of time, which could dampen future car sales.
While consumers may be taking longer to pay back their loans, luxury electric car maker Tesla (NASDAQ:TSLA) is taking less. The company announced last month that it will repay $465 million in federal loans five years ahead of schedule.