Auto Loans

Americans Are Driving Their Cars Longer

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Not only are there more cars on the road than there have been in recent years, they’re also older.

In the second quarter this year, the number of cars and light trucks on the road reached its highest point since the third quarter of 2008: 247.9 million, according to Experian Automotive. The average age of those vehicles is 10.9 years, a year older than it was four years ago, and when it comes to the kinds of cars out there, General Motors had the highest share, at 26.6%, followed by Ford (18.9%), Toyota (12.6%) and Chrysler (12.5%).

Vehicle sales dropped during the recession but have recently surged. That, combined with fewer vehicles being scrapped in the second quarter, contributed to the number of older cars on the road.

What This Means for Shoppers

This has implications for consumers looking to buy a car and possibly take out an auto loan. For anybody looking for a used car, it’s good news.

“As inventory increases, particularly inventory of more late-model used vehicles out there, the potential value of the vehicle comes down,” said Melinda Zabritski, senior director of automotive credit for Experian. “It could lead to slightly less expensive used cars.”

But the affordability of a car depends on more than the make and model — a potential buyer’s credit makes a difference in total cost, because consumers with higher credit scores will be offered lower interest rates. In addition, higher scores can help lower car insurance rates. Aside from payments, car insurance, plus fuel and maintenance contribute to the cost of operating a vehicle.

If your credit history has been less than stellar, it’s best to try to improve your credit profile before shopping for an auto loan. The free Credit Report Card can give you an idea of where you stand and specific steps you can take to improve your score.

Younger Cars Carry the Industry

While the average age of all cars on the road was up in the second quarter, about half (50.9%) of them were between model years 2000 and 2008. So even as much older cars contributed to the high average age, they make up a small portion of cars on the road.

Then there are even newer cars: Consumers who financed vehicles in the same quarter most frequently took out loans on 2010 model cars, and model years 2010 to 2013 accounted for 38.7% of auto loans.

Lenders set different cut-offs on which model year vehicles they will finance, and the statistics for vehicles in operation help them determine loan terms and pricing on older cars. When it comes to the lending market, the number of vehicles in operation has the biggest impact on supply and demand.

In 2008 and 2009, new car sales were low and used car prices were high as a result of higher demand. That led some consumers to buy new cars, when they typically would have bought used.

Zabritski said consumers exhibit patterns: Some regularly look to used cars when buying a vehicle, and others gravitate toward the new ones. During the recession, there was more potential for consumers to deviate from those patterns because of higher used car prices. As indicated by high sales and more vehicles on the road, the recovery has balanced out the inventory in favor of used-car shoppers, and that is likely to re-establish traditional patterns.

Image: iStock

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