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Americans turning to risky long-term auto loans in record numbers, report warns

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More Americans than ever before are turning to long-term auto loans to help them afford a new car, The Wall Street Journal reports (opens in new tab).

Citing recent data (opens in new tab) from Experian, the publication highlights that approximately a third of loans taken out for new cars in the first half of 2019 (H1 2019) featured repayment terms of six years or longer.

Rewind 10 years and that figure stood at less than 10%, but these days even the average car loan stretches to 69 months – a new record.

“People can get into very expensive cars. Households are taking on, on average, more risk," Bronson Argyle, a professor at Brigham Young University specializing in consumer credit, told the WSJ.

Affording the unaffordable

While the whole point of taking out a loan is to spread the cost of big ticket purchases, there's a particular danger with lengthy auto loans as the lifespan of cars can be so limited, even if you're covered by one of the best auto insurance providers and/or best extended car warranty services.

In the WSJ's words, this can create an "illusion of affordability" that ultimately leaves car owners in the unenviable position of being held to "monthly payments that last well past when the brake pads give out."

The uncomfortable truth is that we are spending far more on new cars than we should – nearly double, in fact.

Experian puts the average auto loan at $32,199 in 2019, yet a analysis shows that a household budgeting based on the median US income can only afford a vehicle costing $18,390.

It's a discrepancy of around $15,000 and one that helps to explain the extra years being added to auto loans – especially as dealerships typically make more profit by selling cars on credit than they do through outright purchases.

Remember the bigger picture

So while the monthly repayment offered by a seven, eight or even nine year car loan may seem reasonable, just remember it's part of a bigger picture and that the slick new set of wheels you're eyeing up might come at the expense of saving to buy a home or for your retirement.

This is especially true if you're already paying off unavoidable debt, such as for your college education – even the best student loans come at a cost.

If this all sounds a bit too familiar to you, check out our guides to the best debt consolidation services and best debt settlement companies to learn more about taking back control of your finances.

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A technology journalist with nearly 10 years of experience, James is the former News and Features Editor at Trusted Reviews, and has also served as regional Editor of Lifehacker. His articles have been spotted on sites ranging from The Sun to InStyle, but his true love is shiny things and the story behind them. An avid golfer in his spare time, you'll also regularly catch him hovering over the BBQ listening to Pearl Jam.