With the economy still shaky and the housing market slowly clawing its way back to life, it’s always refreshing to hear good financial news, and in this case it’s coming from an unlikely source: the auto industry.
According to NBC news, reporting on data from Experian, the third quarter of 2013 was a good one for new auto loans. “A record” number of car loans were originated in the months between of July and September of 2013. What’s more, Experian has announced that the average amount of an auto loan during this time period was $26,719, over $700 more than the average car loan taken out in 2012.
In large part, these larger loan amounts are due to a rise in car prices. Also, expensive models – such as SUVs – are regaining popularity due to lower gas prices. Also, sales of luxury cars grew by 11% in 2013. But another factor causing consumers to feel comfortable with buying more car is low interest rates. During the third quarter of 2013, the average interest rate on loans for new cars was 4.27%. Lower interest rates mean that people can buy bigger, nicer vehicles while still coming out financially ahead.
Another interesting development is that car loans are stretching out longer than they ever have before. While most people used to take out 3 or 4 year car notes, almost 41% of loans are now issued for a 5 to 6 year term. But some lenders are allowing customers to take out loans that run as long as 7 years – again, this makes it feasible for people with average salaries to purchase nicer-than-average cars.
What does this news mean for the overall economy? For one thing, auto sales represent the type of consumer spending that has the potential drive up GDP, which will obviously help the economy grow. If the business of America is business, it’s always good to be selling more products!
But many financial experts are even more encouraged by the fact that people seem more willing make large purchases like cars. This implies that their confidence that they’ll be able to repay large loans in the future is growing, probably because the job market is improving. In short, Americans don’t seem to be worried about ongoing joblessness anymore.