Longer auto loans rev up with sales

If your neighbor comes home with a new car and tells you he'll be paying for it over the next seven years, don't act surprised at the length.

New data from Experian found that auto loans with terms of six or more years surged in the fourth quarter. In fact, more than 25 percent of all new vehicle loans have terms of 73 to 84 months, with 12 to 14 percent of auto loans now stretching out over seven years.

"I haven't quite made up my mind on 84 month loans," said Melinda Zabritski, director of automotive credit for Experian Automotive. "Typically, the credit quality tends to drop the longer the loan terms. It has me concerned."

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Auto buyers are stretching out loan terms in an effort to keep their monthly payment as low as possible. In the fourth quarter of last year, the average monthly payment for a new vehicle auto loan was a record high $482, according to Experian. That's due in part to the growth in the total amount of money being borrowed for new vehicles. Experian says buyers are repaying $28,381, an increase of almost $1,000 compared to the last quarter of 2013.

"The type of vehicle people are buying has shifted. We're seeing more trucks and SUVs being bought and those models tend to cost more," said Zabritski.

Leasing Looking Better

With the average transaction (price paid at dealerships) now topping $32,000 according to Truecar.com, many people are opting to lease, not buy, a new vehicle. Experian says 1 in every 4 new vehicles purchased in the fourth quarter were financed with a lease. That is a big increase in leasing compared to 2009, when just 16.8 percent of new models were sold with a lease.

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The average lease term is now 35 months, according to Experian, allowing buyers to lower their average monthly payment to $408.