The 7-Year Car Loan: Not as Economical as You Think
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Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Spreading your car payments over six or seven years as opposed to a typical three or four years may sound like a good idea. But in a moment, a Wall Street Journal finance reporter will come by and explain why going that route could put you on the highway of sticker shock. First, some money in market news you should know. U.S. consumers spend more on groceries than they do at restaurants on average per year, and that's got the attention of restaurant delivery companies DoorDash and Postmates. They're expanding beyond restaurants and working with grocery and drugstores to boost their revenue. Postmates announced on Wednesday it'll soon start making deliveries from about 200 Walgreens and Duane Reade drugstores in New York with an eye on expanding deliveries from those chains nationwide.
Postmates already makes deliveries from Walmart stores, as does DoorDash. But they'll face plenty of competition from the likes of Amazon, Instacart, FreshDirect, and Peapod. Now, while grocery delivery is growing, it's not without some kinks in the system. Many customers have reported problems with ordering online and with delivery. And a recent survey shows more than half of shoppers don't buy groceries online because they feel they'd be less expensive if they buy in the store.
Why are six- and seven-year car loans becoming more common?
But some companies, like Grubhub, have decided to keep their focus on restaurant delivery and not expand to groceries. The labor market remains strong, but if you're looking for a U.S. city with both robust job and salary growth, Atlanta turns up on both lists. The latest job market report from Glassdoor Research shows that while pay is rising nationally at about 2% annually, it's rising at a 3% clip in Atlanta. San Francisco and Boston also top the list for pay growth. And San Francisco and Boston join Atlanta, touting the largest percentage increase in job openings over 2018. And around the country, the top three industries with the fastest growth in job openings in September were government, accounting and legal, and restaurants and bars.
Car prices have outpaced incomes for the past decade, but that hasn't stopped Americans from buying expensive cars and pushing U.S. vehicle sales to record levels. How? Car loans extended to six years, and in many cases longer than that. Easy enough? Not quite. Let's bring in Wall Street Journal reporter Ben Eisen to explain. So, Ben, traditional car loans were anywhere from three to five years. And while extending the life of the loan means spreading the payments out across more years, in a lot of cases, that just creates an illusion of affordability.
Definitely. When people walk into a car dealership, they often think that they can afford the car if they can afford the monthly payment. And the salesman or the finance manager might tell you that your monthly payment is only going to be $400, but it turns out you're making it over a much longer period of time. And a lot of people are very willing to take this deal, and they take out a longer car loan, and they're just making payments for a much longer period of time, eventually paying a lot more in total.
And it's hard to avoid the need for consumers to spread out their loans. More sophisticated multimedia displays in cars, the dominance of SUVs on car lots, that's really pushed car prices higher by a lot.
Definitely. When you look at cars, they're safer, they're more reliable, they're more technologically advanced. Most people are happy to have all of those things. But at the same time, it really has increased the cost of a car. A new car is almost $40,000 on average now when you look at the average transaction price. And then on top of that, you have people really having an eye for more expensive stuff. There's tons of add-ons that you can get on your car. And people like big pickup trucks and SUVs. So you have all of that. But at the same time, You have incomes that have not risen to match. So this discrepancy has formed, and basically that's getting filled with debt.
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