Car loan

The Day – Interest rates and gas prices are low — voila, car loan binge

The average new car loan in the second quarter of this year was $36,072, according to Experian Automotive, nearly $4,000 more than the typical loan a year earlier.

That would be a startling jump in a booming economy where jobs are secure, but in the midst of a recession expected to have long-lasting effects on job security, it’s remarkable.

And it represents a major risk to many households. What’s likely driving the auto borrowing binge is that interest rates are so low; the monthly cost to finance that extra $4,000 only adds about $18 to a monthly payment. And low gas prices are adding to the faulty judgment, as it encourages some buyers to go for the bigger (less fuel efficient) car.

Given that a car is a lousy investment — it is guaranteed to lose value, and new cars typically depreciate up to 40% or so in the first few years — the goal should be to borrow as little as possible.

Experian Automotive says the average car loan now runs for about 71 months. Four in 10 new…

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