CFPB Flags Higher Consumer Risks in Extended Auto Loan Maturities

Although auto lending volume has declined in 2016 and 2017, car loans with longer maturities continue to expand market share, according to a study released today by the Consumer Financial Protection Bureau. Loans with maturities of six years or longer accounted for 42 percent of the market in 2017 year-to-date, up from 26 percent in 2009.

Longer-maturity loans may pose greater risks to consumers, especially since they are more likely to be used for larger loan amounts and by borrowers with lower credit scores. And given that the average length of U.S. car ownership is 6.5 years, longer loan maturities may mean borrowers are paying off loans for cars they no longer drive.

The dividing line in loan quality between five-year loans and six-year loans was especially stark, with default rates for the latter roughly double the former at comparable points since origination. For example, a six-year car loan made in 2014 had a cumulative default rate of over 5 percent two years after origination, but a similar five-year loan saw a default rate of just over 2.5 percent.