Refis making 90-month terms more acceptable

Consumers need more than interest rate savings to make refinancing worthwhile. Despite increasing reliance on 72-month initial terms, consumers who refinance are tacking on another 15 to 20 months of financing to bring vehicle affordability within reach. In the past two years, the average effective term for refinanced loans has hovered around 94 months — a nearly eight-year term — according to Experian ’s second-quarter State of the Automotive Market report. Typically, consumers opt to refinance more than two years into their original loan term. For instance, in the final quarter of 2023, consumers refinanced 30.9 months into their auto loans, according to Experian. By comparison, consumers last quarter waited only 25.7 months before refinancing . Consumers may be choosing to refinance their vehicles sooner to take advantage of lower interest rates . Alternatively, they might refinance to free up cash because their car payments are simply too high and are putting a strain on household finances. Refi volume doubles Last quarter, $3.6 billion in auto loans were refinanced, more than double the volume at the end of 2024, according to Experian. In that span, the number of refinanced loans shot up to 115,000 from 58,000. The increase in refinance volume comes at a time when interest rates have remained relatively steady. On average, interest rate savings have increased to 2% from 0.6% in late 2023, according to Experian. Yet rather than relying solely on the lower interest rate for savings, consumers are extending their original terms to maximize the effects on their monthly payments. Here’s an example: If a consumer took out a $40,000 loan in 2023 for 72 months at 7% interest, the monthly payment would have been $682. After 24 months, he refinances the loan at 6% interest but sticks with the initial six-year term, reducing the monthly payment to $564. Yet instead of applying the lower interest rate to the remaining 48 months of the original loan term, consumers are opting to extend the refinance term to an average of 65 months, according to Experian. On that schedule, the monthly payment would drop to $433. Consumers are clearly hungry for cost savings when it comes to their auto loans. In 2020 and 2021, new-car payments averaged $600 per month. Since then, monthly payments have been hovering in the $700-plus range. Yet consumers are refinancing those loans to get them down even $50 a month, according to Experian. Rising delinquency rates are one gauge of consumers’ inability to afford vehicle payments. In July, the 60-day auto loan delinquency rate increased 3.8% month over month and 0.6% year over year, according to Equifax . Meanwhile, the rate of severely delinquent loans increased to 1.95%, compared with 1.87% in June and 1.90% in July 2024. Similarly, the rising age of vehicles on the road indicates a choice by consumers to hang onto vehicles for longer periods of time to avoid the expensive purchase. The average age of vehicles in the United States hit 12.8 years this year, up from 12.6 years in 2024, according to S&P Global . Passenger cars are even older — 14.5 years. 85-plus-month terms rise Additionally, loan terms continue to extend. Among new-vehicle originations this year, 2.39% had terms exceeding 85 months , according to Experian. That is up 66 basis points from 2023. Even used-car loan terms are increasingly surpassing the 85-month mark; they accounted for 1.09% of originations this year, up 19 basis points from 2023. While lenders typically shy away from originating loans with terms exceeding six years, the industry appears to be headed in that direction on its own. Rising vehicle prices and other household expenses are choking consumers, forcing them to take out longer-term auto loans to achieve affordability. Take a fresh look at the numbers in our example above. Had the consumer simply taken out a 90-month loan back in 2023, his monthly payment would have been $573 — more than $100 less than the 72-month payment. And if, after 24 months, he had refinanced at an interest rate 2% lower for the remaining 66 months, his payment would have dropped another $100 to $463. Whereas lenders would rather avoid originating 90-month loans from the outset, they’re essentially conceding to those terms when consumers refinance. In other words, refinancing has become a tool to make auto loans more accessible to car buyers, whether lenders like it or not. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 15-17 at the Bellagio Las Vegas. Learn more about the 2025 event and register here .

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