FIGURE 4: LOAN AMOUNTS AND MONTHLY PAYMENTS
Average loan amount
Average payment
100
105
110
115
2009 2010 2011 2012 2013 2014 2015 2016 2017
Origination year
Index value (2009 = 100)
measured by the Consumer Price Index, which increased by 12 percent over this
same period. In large part because of the use of longer-term loans, monthly
payments have not experienced the same increase. The average monthly payment
over this time period, which is also shown in Figure 4 indexed to its 2009 average of
$375, increased by 7 percent.
3
While longer loan terms may make monthly payments more affordable, it is not clear
that consumers are better off taking out longer-term loans or that they will be more
likely to successfully repay the loan. Longer-term loans amortize more slowly and, as
a result, financing costs will be higher over the life of the loan. For example, a
borrower who uses a five-year loan to finance $20,000 at a 5 percent interest rate
will, after three years, have paid $2,190.27 in interest and have a remaining balance
of $8,602.98. If the same loan had been financed over six years at the same interest
rate, she would have paid about $152 more interest over the same three-year period
and had a remaining balance that was over $2,000 higher.
3
Another factor that may have limited the growth of monthly payments as loan amounts rose was the
interest rate environment that prevailed over this time period. According to data from the Federal
Reserve Board’s G.19 release, interest rates for five-year auto loans to finance new automobiles
decreased from 6.96 percent in 2009Q1 to 4.05 percent in 2016Q4.
6 QUARTERLY CONSUMER CREDIT TRENDS: GROWTH IN LONGER-TERM AUTO LOANS