Advertiser Disclosure

Auto Loan, Featured, News

U.S. Auto Loan Interest Rates and Delinquencies Q4 2017

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Led by a prolonged period of low interest rates, consumers now have a record $1.2 trillion1 in outstanding auto loan debt. Despite record high levels of issuance, the auto lending market shows signs of tightening. With auto delinquencies on the rise, consumers are facing higher interest rates on both new and used vehicles. In particular, over the last three years, subprime borrowers saw rates rise faster than the market as a whole. MagnifyMoney analyzed trends in auto lending and interest rates to determine what’s really going on under the hood of automotive financing.

Key insights

  • Overall auto delinquency is on the rise, and the first quarter of 2017 saw near-record volume ($8.27 billion) in new severely delinquent auto loans.2
  • Interest rates dipped last quarter, with average new car loan rates down to 5.11%. However, the new rates are still 82 basis points from their lows in late 2013.3
  • The average duration of auto loans (new vehicles) is up to 67.36 months. The longer loans make monthly payments more manageable even as interest rates rise.4
  • The median credit score for an auto loan borrower continues to rise. Currently, the median borrower has a 707 credit score.5
  • More than four out of five (85.1%) new car buyers use financing to buy a car.6
  • Just over half (53.8%) of used car buyers take out a loan to buy a car.7

Facts and figures

  • Average Interest Rate (New Car): 5.11%8
  • Average Interest Rate (Used Car): 8.84%9
  • Average Loan Size New: $29,15410
  • Average Loan Size Used: $17,32111
  • Median Credit Score for Car Loan: 7075
  • % of Auto Loans to Subprime Consumers: 31.1%12

Subprime auto loans

  • Total Subprime Market Value: $243 billion13
  • Average Subprime LTV: 110.5%14
  • Average Interest Rate (New Car): 10.98%15
  • Average Interest Rate (Used Car): 16.27%16
  • Average Loan Size (New Car): $28,60317
  • Average Loan Size (Used Car): $16,55718
  • % Leasing: 23.4%19

Prime auto loans

  • Total Prime Market Value: $747 billion20
  • Average Prime LTV: 96.2%21
  • Average Interest Rate (New Car): 4.03%22
  • Average Interest Rate (Used Car): 5.48%23
  • Average Loan Size (New Car): $32,72724
  • Average Loan Size (Used Car): $21,16225
  • % Leasing: 33.8%26

Auto loan interest rates

Interest rates for auto loans continue to remain near historic lows. Interest rates for used cars is now 8.84% on average. The average interest rate on new cars (including leases) is 5.11%. However, the historically low rates belie a tightening of auto lending, especially for subprime borrowers.

Source: Experian “State of Automotive Finance,” and MagnifyMoney.27

New loan interest rates

Source: Experian “State of Automotive Finance,” and MagnifyMoney.28

Consumer credit information company Experian reports that the average interest rate on all new auto loans was 5.11%, up 82 basis points from the trough five years earlier.29 Compared with the previous year, interest rates are up 37 basis points for new cars. The interest rate increase reflected underlying tightening in the auto loan market for new vehicles.

During the last few years, lenders tilted away from subprime borrowers. In the fourth quarter of 2017, just 9.37% of loans for new vehicles went to subprime borrowers compared with peak subprime lending of 11.48% in the fourth quarter of 2015. The movement away from subprime borrowers led to a smaller increase in new car interest rates.30

Source: Experian “State of Automotive Finance,” and MagnifyMoney.31

Across all credit scoring segments, borrowers taking out loans for new vehicles faced higher average borrowing rates compared with this time last year. Super-prime borrowers took on the largest average rate increase. Rates for this segment rose 54 points to 3.17% on average. Rates for super-prime borrowers are the highest they’ve been since the end of 2011.32

When comparing credit scores to lending rates, we see a slow tightening in the auto lending market since the end of 2013. The trend is especially pronounced among subprime and deep subprime borrowers. These borrowers face auto loan interest rates that are growing faster than the market average. However prime and super-prime rates are slowly starting to tighten as well. Consumers should expect to see the trend toward slightly higher interest rates continue until the economic climate changes.

Source: Experian “State of Automotive Finance,” and MagnifyMoney.33

Even with the tightening, interest rates remain near historic lows for borrowers with fair credit and above. However, the low rates aren’t translating to consumers paying less interest on their vehicle purchases. The estimated cost of interest on new vehicle purchases is now $4,443,34 up 49% from its low in the third quarter of 2013.

Source: Federal Reserve Board of St. Louis, Experian “State of Automotive Finance,” and MagnifyMoney.35

Growth in interest paid over the life of the loan stems from longer loans and higher average loan amounts. The average maturity for a new loan grew from 62.4 months in the third quarter of 2008 to 67.4 months.36 During the same time, average loan amounts for new vehicles grew 17.7% to $29,154.37

Used loan interest rates

Source: Experian “State of Automotive Finance,” and MagnifyMoney.38

Over the past year, interest rates for used vehicles plummeted to their lowest rates ever, but recent movements show that interest rates for used cars may be stabilizing or climbing. Year after year, used car interest rates increased by 34 basis points to 8.84%. The climb in average interest rates came despite the fact that borrowers now have better credit scores than ever before. In the fourth quarter of 2017, almost half of all used-car borrowers (48.5%) had prime or better credit. The year before, 47.8% of used borrowers were prime.39

Source: Experian “State of Automotive Finance.”40

On the whole, borrowers in the used car market face modest increases in interest rates compared with this time last year. The biggest increases came among subprime and nonprime borrowers who saw average rates increase by 57 basis points (.57%) and 52 basis points (.52%) respectively. The rate for subprime borrowers is now 16.27% on average — nonprime borrowers face rates of 10.01%. Interest rate hikes for subprime borrowers are part of a broader trend that started in 2009. Since 2009, interest rates for subprime borrowers are up nearly two full percentage points, and interest rates for deep subprime borrowers are up 3.5 percentage points.

Super prime and prime borrowers were somewhat insulated from the modest rate increases in the used market. Their rates rose by an average of 41 and 39 basis points respectively. Average rates for borrowers with super-prime credit is up to 3.8% — the prime rate to 5.48%.41 Despite the recent increases, interest rates for prime borrowers are still near historic lows.

Source: Experian “State of Automotive Finance” and MagnifyMoney.42

Rising interest rates mean that consumers are putting more money toward interest than they have in the past. The estimated total interest on a used car loan today is $4,202, up $454 from this time five years ago. Rising interest rates are not the only factor driving up interest rate expenses. A more important factor in the total interest cost is the longer average loan terms for used cars (61 months vs. 58 months),43 leading to more interest paid over the life of a car loan.

Source: Federal Reserve Board of St. Louis, Experian “State of Automotive Finance,” and MagnifyMoney.44

Auto loan interest rates and credit score

As of June 2017, the median credit score for all auto loan borrowers was 70745 The median credit score among auto loan borrowers is at its highest point in six years.

Source: Federal Reserve Bank of New York/Equifax Consumer Credit Panel. 46

In the third quarter of 2017, just 31.1% of all auto loans were issued to subprime borrowers compared with an average of 35% over the past three years. Ally Financial, the nation’s largest auto lender, limited subprime lending to just 8.8% of their auto loan portfolio, and Wells Fargo, the nation’s third largest auto lender, announced intentions to limit subprime auto lending to less than 10% of their auto portfolio. With fewer big banks lending to subprime borrowers, consumers may expect to see rising interest rates in that segment.

Source: Federal Reserve Bank of New York/Equifax Consumer Credit Panel, and MagnifyMoney.47

Total auto loan volume decreased dramatically between 2008 and 2010. During that time, subprime and deep subprime lending contracted faster than the rest of the market. Since early 2010, auto lending rebounded to near pre-recession levels, but subprime lending lagged in recovery. In the fourth quarter of 2017, banks issued $42.7 billion to subprime borrowers, well under the average $48.2 billion of subprime auto loans issued each quarter between 2005 and 2007.

Source: Federal Reserve Bank of New York/Equifax Consumer Credit Panel.48

Loan-to-value ratios and auto loan interest rates

One factor that influences auto loan interest rates is the initial loan-to-value (LTV) ratio. A ratio over 100% indicates that the driver owes more on the loan than the value of the vehicle. This happens when a car owner rolls “negative equity” into a new car loan.

Among prime borrowers, the average LTV was 96.18%.* Among subprime borrowers, the average LTV was 110.54%.**49 Both subprime and prime borrowers show improved LTV ratios from the 2007-2008 time frame.

*Average LTV reflects only securitized loans.

**Average LTV reflects only securitized loans.

Source: S&P Global Ratings.50

Research from the Experian market insight group51 showed that loan-to-value ratios well over 100% correlated to higher charge-off rates. As a result, car owners with higher LTV ratios can expect higher interest rates. An automotive finance market report from Experian52 showed that loans for used vehicles with 140% LTV had a 3.03% higher interest rate than loans with a 95%-99% LTV. Loans for new cars charged just a 1.28% premium for high LTV loans.

Auto loan term length and interest rates

On average, auto loans with longer terms result in higher charge-off rates. As a result, financiers charge higher interest rates for longer loans. Despite the higher interest rates, longer loans are becoming increasingly popular in both the new and used auto loan markets.

The average length to maturity for new car loans in the third quarter of 2017 is 67.4 months.53 For used cars, the average is 61.25 months.54 Loans for both new and used cars are now more than six months longer on average than they were in 2009. Based on data from Experian, the increase in average length to maturity is driven primarily by an increasing concentration of borrowers taking out loans requiring 61 to 72 months of maturity.55

In the fourth quarter of 2017, just 6.5% of all new vehicle loans had payoff terms of 48 months or less, and 31% of all loans had payoff periods of more than six years.56 Among used car loans, 16.5% of loans had payoff periods less than 48 months. Even more loans (17.5% of all used vehicle loans), had payoff periods longer than six years.57

Source: Federal Reserve Bank of St. Louis.58

Auto loan delinquency rates

Despite a trend toward more prime lending, we’ve seen deterioration in the rates and volume of severe delinquency. In the first quarter of 2017, $8.27 billion in auto loans fell into severe delinquency.59 This is near an all-time high.

Source: Federal Reserve Bank of New York and Equifax Consumer Credit Panel.60

Overall, 4.05% of all auto loans are severely delinquent. Delinquent loans have been on the rise since 2014, and the overall rate of delinquent loans is well above the pre-recession average of 2.3%.

Source: Federal Reserve Bank of New York/Equifax Consumer Credit Panel.61

Between 2007 and 2010, auto delinquency rates rose sharply, which led to a dramatic decline in overall auto lending. So far, the slow increase in auto delinquency between 2014 and the present has not been associated with a collapse in auto lending. In fact, the total outstanding balance is up 40% to $1.22 billion since 2014.62

However, the increase in auto delinquency means lenders may continue to tighten lending to subprime borrowers. Borrowers with subprime credit should make an effort to clean up their credit as much as possible before attempting to take out an auto loan. This is the best way to guarantee lower interest rates on auto loans.

Sources

  1. Quarterly Report on Household Debt and Credit February 2018.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Feb. 20, 2018.
  2. Quarterly Report on Household Debt and Credit February 2018.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Feb. 20, 2018.
  3. State of the Automotive Finance Market,” New Car Average Rates – Page 26, from Experian. Accessed March 3, 2018.
  4. Board of Governors of the Federal Reserve System (U.S.), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2017. Accessed Feb. 21, 2018
  5. Quarterly Report on Household Debt and Credit February 2018.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Feb. 21, 2018.
  6. State of the Automotive Finance Market,” Percentage of Vehicles with Financing – Page 12, from Experian. Accessed March 3, 2018.
  7. State of the Automotive Finance Market,” Percentage of Vehicles with Financing – Page 26, from Experian.™ Accessed March 3, 2018.
  8. State of the Automotive Finance Market,” Avg New Rates – Page 26, from Experian.TM Accessed March 3, 2018.
  9. State of the Automotive Finance Market,” All Used Rates – Page 26, from Experian.TM Accessed March 3, 2018.
  10. “Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, Oct. 2, 2017.
  11. “Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, Oct. 2, 2017.
  12. Quarterly Report on Household Debt and Credit February 2018.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Feb. 21, 2018.
  13. “Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q4 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit February 2018.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed March 3, 2018

    (3.77% of All Loans Are Deep Subprime + 16.11% of All Loans Are Subprime) X ($1.221 trillion in Auto Loans)

  14. U.S. Auto Loan ABS Tracker: Full-Year 2017 And December 2017 Performance,” from S&P Global Ratings. Accessed March 3, 2018.
  15. State of the Automotive Finance Market,” New Car Subprime Average Rates, Page 26, from Experian.TM Accessed March 3, 2018
  16. State of the Automotive Finance Market,” Used Car Subprime Average Rates, Page 26, from Experian.TM Accessed March 3, 2018.
  17. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 20, from Experian.TM Accessed March 3, 2018.
  18. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 20, from Experian.TM Accessed March 3, 2018.
  19. State of the Automotive Finance Market,” % Leasing By Tier, Page 20, from Experian.™ Accessed March 3, 2018.
  20. “Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q4 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit February 2018.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed March 3, 2018.

    (42% of All Loans Are Prime + 19.17% of All Loans Are Super Prime) X ($1.221 trillion in Auto Loans)

  21. U.S. Auto Loan ABS Tracker: Full-Year 2017 And December 2017 Performance,” from S&P Global Ratings. Accessed March 3, 2018.
  22. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 26, from Experian.TM Accessed March 3, 2018.
  23. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (Used Car), Page 26, from Experian.TM Accessed March 3, 2018.
  24. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 20, from Experian.™ Accessed March 3, 2018.
  25. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 20, from Experian.™ Accessed March 3, 2018.
  26. State of the Automotive Finance Market,” % Leasing By Tier, Page 17, from Experian.™ Accessed March 3, 2018.
  27. Graph 1 – Auto Loan Interest Rates, data compiled from historic Experian State of Automotive Finance Reports. Accessed Feb. 21, 2018.
  28. Graph 2 – Average New Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports. Accessed Feb. 21, 2018.
  29. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 26, from Experian.TM Accessed March 3, 2018.
  30. State of the Automotive Finance Market,” New Loan Risk Distribution, Page 16, from Experian.™ Accessed March 3, 2018.
  31. Graph 3 – % of New Car Loans Issued to Subprime Borrowers, data compiled from historic Experian State of the Automotive Finance Market reports.
  32. Average Interest Rate by Credit Score, data compiled from historic Experian State of Automotive Finance reports.
  33. Graph 4 – Average Interest Rate by Credit Score (New Car Loans), data compiled from historic Experian State of Automotive Finance reports.
  34. Calculated metric: Total Interest over the Life an Auto Loan (New Car).
    1. Board of Governors of the Federal Reserve System (U.S.), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis;
    2. Board of Governors of the Federal Reserve System (U.S.), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, Accessed Feb. 21, 2018.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  35. Graph 5 – Estimated Interest on New Car Loan.
    1. Board of Governors of the Federal Reserve System (U.S.), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis;
      https://fred.stlouisfed.org/series/DTCTLVENANM, Accessed Feb. 21, 2018.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, Accessed Feb. 21, 2018.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  36. “Board of Governors of the Federal Reserve System (U.S.), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis;
    https://fred.stlouisfed.org/series/DTCTLVENMNM, Accessed Feb. 21, 2018.
  37. Board of Governors of the Federal Reserve System (U.S.), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, Accessed Feb. 21, 2018.
  38. Graph 6 – Average Used Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance reports.
  39. State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 16, from Experian.TM Accessed March 3, 2018.
  40. “Graph 7 – Lending By Credit Score Q4 2016 vs. Q4 2017 “State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 16, from Experian.TM Accessed March 3, 2018.
  41. State of the Automotive Finance Market,” Average Loan Rates By Credit Tier (Used Cars), Page 26, from Experian.™ Accessed March 3, 2018.
  42. Graph 8 – Average Interest Rate by Credit Score (Used Car Loans), data compiled from historic Experian State of Automotive Finance reports.
  43. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, Feb. 26, 2018
  44. Graph 9 – Calculated metric: Estimated Interest on Used Car Loans.
    1. Board of Governors of the Federal Reserve System (U.S.), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, Feb. 26, 2018
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis;
      https://fred.stlouisfed.org/series/DTCTLVEUMNQ, Feb. 26, 2018
    3. Average Used Car Interest Rate, data compiled from historic Experian State of Automotive Finance reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  45. Quarterly Report on Household Debt and Credit February 2018.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Feb. 26, 2018.
  46. Graph 10 – Credit Score at Auto Loan Origination “Quarterly Report on Household Debt and Credit February 2018.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Feb. 26, 2018.
  47. Graph 11 – % of New Loans Issued to Subprime Borrowers. Calculated metric from “Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score ((<620+620-659)/Total Lending), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed Sept. 7, 2017.
  48. Graph 12 – Auto Loan Origination by Credit Tier “Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  49. U.S. Auto Loan ABS Tracker: Full-Year 2017 And December 2017 Performance,” from S&P Global Ratings. Accessed Feb. 26, 2018.
  50. Graph 13 – Average LTV at Auto Loan Origination “U.S. Auto Loan ABS Tracker: Full-Year 2017 And December 2017 Performance,” from S&P Global Ratings. Accessed Feb. 26, 2018.
  51. Understanding automotive loan charge-off patterns can help mitigate lender risk,” from Experian.TM Accessed Feb. 26, 2018.
  52. State of the Automotive Finance Market Q4 2010,” Pages 25-26, from Experian.TM
  53. Board of Governors of the Federal Reserve System (U.S.), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis;
    https://fred.stlouisfed.org/series/DTCTLVENMNM, February 26, 2018.
  54. “Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis;
    https://fred.stlouisfed.org/series/DTCTLVEUMNQ, February 26, 2018.
  55. State of the Automotive Finance Market,” Percentage of new loans by Term, Page 23, from Experian.™Accessed February 26, 2018.
  56. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.™ Accessed March 3, 2018.
  57. “Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM Accessed March 3, 2018.
  58. Graph 14 – Average Auto Loan Length to Maturity (Months).
    1. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis;
      https://fred.stlouisfed.org/series/DTCTLVENMNM, Accessed February 26, 2018.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis;
      https://fred.stlouisfed.org/series/DTCTLVEUMNQ, Accessed February 26, 2018.
  59. Graph 15 – New Severely Delinquent Auto Loans (90+ Days) “Quarterly Report on Household Debt and Credit August 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  60. Quarterly Report on Household Debt and Credit February 2018.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed February 26, 2018. (Q1 2014 compared to Q4 2017.)
  61. Graph 16 – % of All Loans Severely Delinquent “Quarterly Report on Household Debt and Credit February 2018.” % of Balance 90+ Days Delinquent: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed February 26, 2018.
  62. Quarterly Report on Household Debt and Credit February 2018.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed February 26, 2018.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

TAGS:

Advertiser Disclosure

Auto Loan

Jet Ski Financing: How Does It Work?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

jet ski financing
iStock

Do you have your heart set on a new jet ski this summer? With prices stretching to nearly $15,000 apiece — and you may want more than one for families — you may be busy researching jet ski financing options to turn your daydreams into reality.

Getting jet ski financing isn’t difficult. In fact, it’s similar to financing most other recreational vehicles. But some methods are better than others, depending on your particular situation. We’ll walk you through some affordable ways to finance your purchase and some options you would probably be wise to avoid. Keep reading to compare your choices using our side-by-side chart.

How to finance your jet ski

As with any type of financing, the better your credit rating, the more attractive the options you may have available to you.

  • Manufacturer financing
    Vehicle manufacturers are known for offering attractive interest rates for well-qualified borrowers as an incentive to purchase certain products or models. Whether you’re buying a jet ski or another type of vehicle, financing through the manufacturer will often be the most affordable way to go — if you have good credit. In fact, with good credit scores you might even be able to score 0% APR financing through a manufacturer, albeit likely for a shorter loan term (e.g. 12 months) or introductory period. Keep in mind, that low initial APR could jump to a much higher rate if you need more time to pay off your loan.
  • Powersport loans
    Banks, credit unions and online lenders will offer loans for jet skis under different names including specialty vehicles, sport or leisure vehicles. These loans may have higher rates than manufacturer financing incentives but typically come with lower interest rates than personal loans, which we’ll talk about next. If you’re comparing rates on powersport loans with manufacturer loans, remember that your rate on a manufacturer loan may change over time. Calculate your total interest over the life of the loan to see which option may give you the lowest cost for financing. We recently found powersport loan rates as low as 4.29% APR with more offers around 5% and 6% APR though again, the best rates tend to go to those with the best credit and for the shortest terms.
  • Personal loans
    Many banks and online lenders offer personal loans which can be used to finance a jet ski purchase. If your credit scores are in less-than-perfect condition, you might have an easier time qualifying for a personal loan (depending upon each lender’s requirements) when compared with other borrowing alternatives. However, if your credit scores are in great shape, there’s a chance you might be able to find a more affordable way to finance your jet ski purchase.A personal loan also might be your best bet if you’re looking to buy a used jet ski that you can’t — or don’t want to — pay for with cash. Some banks may have minimum amounts for powersport loans but lower requirements for personal loans.
  • Credit cards
    Although it may technically be possible to use a credit card to finance your jet ski purchase, it’s usually not a good idea. Unless you have an attractive introductory rate offer, credit cards are a notoriously expensive way to finance big purchases. Also, if your debt-to-limit ratio climbs higher because of an expensive purchase, your credit scores could suffer until you’re able to pay down your card balance. “Putting a big, fun purchase on a credit card is tempting, but it may be a costly mistake,” said Eric Rosenberg, founder and editor at Personal Profitability. “Unlike a mortgage or a car loan, where you get a lower interest rate because the loan is secured by the vehicle, that isn’t true with a credit card. You could easily find yourself paying 20% or more to pay off that jet ski. No amount of fun is worth that cost.”

Which type of jet ski financing is right for you?

The best way to finance a jet ski is going to be different for different people. Here’s a side by side comparison to help you compare the features of the four jet ski financing options above.

 Average Interest RatesChanging Interest RatesCredit RequirementRisk of Credit Score Damage from High Utilization
Manufacturer LoanInterest rates may start as low as 0% for qualified borrowersRates sometimes start out low and increase over timeGood or better to qualify for the best offersNo
Powersport
Loan
APRs usually lower than personal loansRates are typically fixed over the life of the loanVaries — the higher your score, the better your interest rateNo
Personal
Loan
APRs usually higher than powersport loansRates are typically fixed over the life of the loanSome lenders have options beginning at a minimum credit score of 525 (though you probably won’t get the best interest rates).No
Credit CardsAverage APR is 16.86%Rates may change over timeN/A if your account is already openYes

*Note: The chart above is a helpful guide, but you should always check with individual lenders to compare the specific rates and terms available when shopping for any type of financing.

What to look out for when financing a jet ski

It’s true that owning a jet ski can be a lot of fun. However, you shouldn’t finance any recreational vehicle unless there’s room in your budget to afford it.

Rosenberg recommends that you “never let this type of purchase put you under financial pressure. It isn’t worth the cost if you’ll miss other bills.”

Not sure how much jet ski you can afford? This helpful payment calculator from LendingTree can help you to figure out the answer. LendingTree is MagnifyMoney’s parent company.

The bottom line

Can you afford to purchase your jet ski in cash? If so, you might want to think twice about taking out a loan and paying interest to a lender. (Of course, if you qualify for a 0% or low introductory offer through a manufacturer, you could always take advantage of the low-intro rate and then pay the remaining balance in full when it expires.)

There’s also something to be said for saving your money in order to avoid high interest on a major purchase through your credit card. It might mean putting your purchase off until next year, but the money you could save on interest could be a great trade-off for your wait.

If you prefer to take out a loan so you can enjoy your jet ski now, focus on the interest rates and fees charged by different lenders. We found some of the lowest rates at credit unions and online lenders. Shop around and don’t forget to check with your own bank — many offer discounted rates to existing customers who use autopay. Also, don’t forget that you may be able to make extra payments to wipe out the debt more quickly and potentially lower the amount of interest you’ll have to pay in the long run.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Michelle Black
Michelle Black |

Michelle Black is a writer at MagnifyMoney. You can email Michelle here

TAGS:

Advertiser Disclosure

Auto Loan

How to Avoid Buying a Lemon Car: The Complete Guide

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Lemon Car
Getty Images

Dealing with a lemon car — a vehicle that has problems right after you buy or lease it — can leave a sour taste in your mouth and make you bitter from the buying process. Depending on the state in which you live, its laws may or may not provide much protection, so it’s best to avoid buying a lemon vehicle in the first place. Here’s how.

Research the car

While you don’t have to follow all of these steps to avoid buying a lemon car, they’re good to know.

Read online reviews. If you don’t already have a certain car — or cars — in mind, reading as much as you can about the pros and cons of different types of vehicles may help you narrow down a wide field of new and used cars. Ask yourself these five questions. Then, pick out a few to research, checking on any sales, deals or incentives in your area.

Search by the exact year, make and model — 2015 Toyota Camry, for example — and the word “reviews” for posts from current or former owners. You could also look up the car on sites such as Kelley Blue Book and Edmunds, which have in-depth expert reviews and consumer reviews, as well as overall government safety scores.

Does the car have any recalls? You can check a car’s recall status and history for free.

A recall is when an automaker or the National Highway Traffic Safety Administration determines there is something wrong with a car and owners may have the problem fixed free of charge (the automaker pays for it). Several recalls on a young vehicle may be a warning sign that the car will continue to have problems.

Ask for a vehicle history report. If a car is used, it should have a vehicle history report. Many dealers and online car-buying sites such as Carvana provide one for free. You could obtain your own vehicle history report through such sites as Carfax for a fee. Here is what you should look for in a vehicle history report:

  • Regular servicing. A car with standard oil should have an oil change about every 5,000 miles. A car with synthetic oil should have an oil change every 7,000 miles.
  • Minor or no accidents. Any accident reported to the police should be on the vehicle history report. If any accident is listed as major or as causing frame damage to the car, that’s a red flag.
  • Few owners. If the car had several owners in a short amount of time, such as three owners in two years, that may be a sign the vehicle has problems that are so expensive to fix, the owners sell it rather than fix it.

Looking for auto financing? Check out these top picks for the best auto loans in 2019.

The ins and outs of buying a used car

Here are ways you can check to see if the car has any leaks, been in an unreported accident and that its equipment works. You may not need to do all of this if you are looking at a new car, but these steps may be especially helpful if you’re buying a used car from a private party.

If the car passes the tests that you perform, consider getting an independent mechanic to check it out even further. They should be able to tell you whether the car will last another 100,000 miles or if it’s about to have an expensive problem.

The exterior. Run your hands along the car to search for any signs of an accident that may not have been reported: dents, bumps, different colors of paint, and irregularly-spaced gaps. Things that may be hard to see may be easier to feel, so don’t be afraid to touch the car.

  • Engine frame. Pop the hood and look at the beams between the engine and the painted body of the car. There should be no kinks or wrinkles in them. If there are, the car may have been in a front-end crash.
  • Spare tire well. If the vehicle has a spare tire compartment in the trunk or cargo area, take a peek to see that there are also no asymmetries or other signs of damage in the frame of the compartment. If there are, the car may have been in a rear-end crash.
  • Gaps and seams. Run a finger along the gaps where the doors, hood and trunk top, if there is one, meet the body of the car. If the gaps change in size noticeably from one end to the other, the door may have been re-hung, meaning it may have been in an accident.
  • The tires. A big giveaway that the suspension is bad is when the tires have uneven wear. Look at the flat part of the tire where the tread is. If one part is almost bald compared with the other parts, the suspension may be off. The tread should be an even depth across the tire — you could check it by inserting a penny in the tread at different points.

The interior. When you’re sitting in the car, you can pick up a lot of clues about the vehicle’s health by paying attention and doing the following:

  • Take a deep breath. If you smell rust, mold or mildew, don’t buy it.
  • Wiggle in the seat. Does the seat sag or complain? That can be a sign of wear and tear.
  • Look for missing pieces. Are there any knobs or switches missing?
  • Lightly stomp on the floorboard. Is it firm or does it feel shaky?
  • Check the seat belts. Are they frayed or have friction burns?
  • Turn everything on. Does the AC work? The heat? Check the windshield wipers, the lights, the radio, the locks, the heated seats – if they’re a feature – and everything else.

Invest in a vehicle code reader. A vehicle code reader plugs into a car’s computer system, unlocking information about possible problems. You could buy a code reader yourself (they are available for under $20 online), or ask a mechanic or auto supply store to run a diagnostic scan for you. Car part stores often do it as a free service.

If the code reader turns up problem spots, that may be a reason to pass on the car or negotiate a lower price with the seller.

The engine
Perhaps the most important part of the car is the part that makes it go. If you are looking at a used car, this section may be especially important for you.

  • Oil. The engine oil should be dark black and feel smooth when you rub it between your fingers. It should reach the “fill line” on the dipstick. It should not be a light color or feel gritty.
  • Transmission fluid. The transmission fluid should be bright red, not reddish brown or a darker color. It should not smell burnt or have anything floating in it.
  • Belts. The engine belts should be flexible, not stiff or frayed.
  • Exhaust. The exhaust coming out of the back of the car should be clear and not smell of anything. Blue, white, gray or black smoke means trouble. Some water condensation is normal.

For a more in-depth guide, check out our used car buying checklist.

Drive it like you stole it

Well, not really, but do put the car through its paces on the test drive.

1. Listen when you test drive the car. Squeaks or squeals when you go over a speed bump or pothole point to bad suspension. Pinging or knocking noises point to a bad engine. Grinding and whining noises point to a bad transmission. A lot of wind noise when you go faster may mean the car cabin isn’t water-tight.

2. Observe how smooth the ride is. Do you bounce up and down in the car at the slightest bump? Do you feel every turn sharply even when it’s a smooth curve?

3. Drive it hard. The purpose of a test drive isn’t to take a leisurely cruise, but to test the car. Accelerate hard, brake hard, turn left and right sharply.

What to do if you think you bought a lemon car

The first two things to do if you think you bought a lemon is to talk to the seller and to look up your state’s lemon car laws — the Better Business Bureau tracks them here. An agreement with the seller is probably preferable to going to court and it may be that the seller covers all or part of the repair cost or accepts the car as a return. At the same time, it is important to know what your rights are in your state. You should be aware that some state lemon laws only cover new cars while others don’t cover leased vehicles.

The bottom line

Do your research. Don’t be afraid to check everything, ask questions and test drive a car, maybe more than once. Strongly consider getting a professional mechanic to check it out. Doing these things will make your chance of buying a lemon drop sharply, which may make life a little sweeter.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

TAGS: