(CBS NEWS) – When you’re looking at that shiny — and pricey — new car, pickup or SUV, taking a longer loan may seem like a good way to keep the monthly payments down. But the Consumer Financial Protection Bureau is warning that auto loans of six years or longer are significantly riskier than shorter-term financing.
The federal agency noted that in the past year, 42 percent of loans for new and used cars have been for six years or more, compared with 26 percent in 2009. Such loans have a current default rate of 8 percent — twice that of more traditional five-year loans.
“The move to longer-term auto loans is opening up more risk for consumers,” said CFPB Director Richard Cordray. “Those loans are more expensive and can result in consumers continuing to owe even after they’re no longer driving their cars.”
With expensive SUVs and pickups soaring in popularity, the average new-vehicle transaction price is now $35,263, according to Kelley Blue Book. As a result, longer loans have proliferated. And the CFPB noted that they’re used especially by consumers with lower credit scores. The average credit score for buyers who take out six-year loans is 674. That’s 39 points below the average for consumers who took five-year loans.