Tesla Buyers Take The Longest Loans?
The COVID-19 pandemic has disrupted supply chains in just
about every industry. Within the automotive industry, the global microchip
shortage has gotten a lot of attention and has delayed and even halted the
production of some vehicles since the beginning of the year. A shortage in
supply and a high demand for cars, has caused prices to shoot through the roof,
even for used vehicles. And as the prices have risen, so have the average
length of auto loans, according to a new survey from LendingTree.1
Loan lengths hit a low in November 2020, at 59.9 months on average and reached
a three-year peak in July 2021 at 65.6 months.
The survey found Tesla buyers take on the longest loan terms, at an average of 67.1 months. That's compared to an average of 64.6 months for all loan lengths throughout the first 10 months of 2021. Ram buyers followed closely behind Tesla, with an average of 66.3 months and the only car make that was below a 60-month average was Mini, at 59.7 months.
The right vehicle and auto loan terms depend on an individual's financial situation and lifestyle. It's true that a shorter auto loan term will save you money in the long run but if it comes with an unaffordable monthly payment, you could end up putting yourself into a more troubling financial situation. While there are many things to consider when deciding to buy a car, asking these questions will help you breathe easier® in the long run.
Do I actually need a new car, or am I just trying to keep up with the Joneses?
For example, if you are three years into repaying a car loan and you decide to cash-in on low rates by buying a new car with a six-year loan. Is nine years of car payments a commitment you are willing to take on when your original vehicle is serving your needs?
Should I buy a new or used vehicle?
This really depends on your current financial situation. It's key to take a closer look at what you can really afford. If you are overspending on a car loan that makes it impossible to save enough for retirement, or fully fund your emergency savings account, it may be time to pause and reevaluate the criteria for the car you're looking to purchase.
How can I accelerate my debt payoff?
- Make a larger down payment. It might mean waiting a little longer to shop for a car, but more cash upfront means a smaller auto loan.
- Increase your monthly payments. As long as your loan doesn't have prepayment penalties, putting extra money toward the principal on your auto loan will help reduce the overall interest you'll pay over the life of the loan.
- Refinance to a shorter-term loan. If you're already paying back an auto loan with a longer term than you'd like, you have the option to refinance to a shorter loan term.
Before you choose to buy or get into debt for a new car, make sure you review all of your options. If you have any questions, be sure to talk to your advisor or set up an appointment today so we can help you build a leaner budget, a fatter wallet, and a bigger net worth.