Length of auto loans increasing along with prices

Car prices are up, and with them the length of auto loans.

The average length of new auto loans in the United States reached a record 66 months in the second quarter of 2014, according to Experian's automotive branch. Just a few short years ago, car sales were typically financed at 36 or 48 months, but now 41 percent of all loans are in the 60 to 72-month range. A very small number of loans are even stretching to an unprecedented 96 months for the most expensive models and well-qualified buyers.

According to The New York Times, higher vehicle prices are the primary reason for this extension. Longer loans mean lower monthly payments, but they also have disadvantages for the consumer. Because long loans are riskier for lending institutions, the interest rates are higher. By the time the loan is paid off, the borrower has typically spent more money than they would with a shorter-term deal.

While loans are longer, the wait between new car purchases has not increased significantly, so the time that owners spend driving a car that is 100 percent paid for is shorter than ever. Because of the rate at which vehicles depreciate, selling or trading in before repaying the loan is also risky, since the seller could end up making less than the outstanding debt.

In general, experts say the monthly savings don't make up for the downside of taking on a six- or seven-year loan. They recommend that borrowers stick to a more traditional window of four or five years and purchase a less expensive model if necessary.

Regardless of the length and terms of an auto loan, amortization schedules help ensure that installment payments are made in a timely manner.