End the duopoly

The 7-Year Car Loan: Watch Your Wallet

A couple of years ago, Laura Hart had been through a divorce, her car was 11 years old, and she wanted a new vehicle. “Almost, ‘I earned it,’ really” is how Hart says she felt at the time.

She’d been through a tough experience “while maintaining a full-time job and raising two kids and things like that, so when I got to the point where I felt comfortable to take on a car loan again, I was fairly proud and ready to do that.”

Hart is a grade school principal in Clovis, Calif. And having kids, she wanted better safety features. She decided on a new Jeep Cherokee.

She spent almost exactly what Americans are spending on new cars on average these days — $37,782, according to the car-buying site Edmunds. Americans are buying bigger, pricier cars with more options. And one thing driving this trend is dealers offering car loans with seven-year terms.

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A seven-year car loan means lower monthly payments than a three- or five-year loan. That sounded good to Hart. And she’s not alone. A third of all new car loans now have terms longer than six years, according to the credit reporting company Experian. That’s more than three times as big a share of the loan market as a decade ago.

In the first half of 2019, seven-year car loans made up 31.5% of car loans, a sharp increase since 2009.

2019 estimates are for the first half of 2019. Year labels represent loan terms within the previous 11-month span.

But while these loans are popular, they’re probably not the best personal finance move.

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