Americans are taking out ridiculously long car loans

  • A the wall street journal The report states that a third of all new vehicle loans in the United States last more than six years and concludes that “the American middle class cannot afford their cars”.
  • The newspaper also reports that only 18% of American households can afford to pay cash for a new car.
  • Seven million people are at least 90 days behind on their payments, so is it the lenders or the people living beyond their means, or both?

    Nobody Needs be that first butt in the seat of one of the 17 million new vehicles purchased each year in the United States. But we want it. There’s a problem with that: new car loans are the longest and most expensive they’ve ever been, and too many people turn their existing loans into new ones when negotiating. If left unchecked, this could be another economic disaster waiting to explode.

    According to Experian, the average loan for a new car was $32,119 during the second quarter of this year (which, at 16% more than during the third quarter of 2014, is normal at a rate of inflation standard annual rate of 3%). For a used car, it was $20,156, only 9% more. While delinquencies have remained stable even as some seven million people fall behind on payments of 90 days or more, the brewing problem is with loans that last six years or more.

    The Consumer Financial Protection Bureau estimated that 42% of all auto loans made in 2017 were 72 months or longer. Now, the average loan term for new cars is 69 months, and loans of 85 months or more accounted for 1.5% of all new car loans, according to the the wall street journal. With average interest rates of 6% for new cars and 10% for used cars – a sharp rise in the years following the 2009 recession, when credit began to flow in the wake of billions in government bailouts to automakers and banks – it’s highly likely that car owners, like students, won’t pay back their loans. According to WSJ narrative.

    Jacobs Stock Photography LtdGetty Images

    Extremely long loan terms emerged in 2014, when new auto loans between 73 and 84 months jumped 24% from the previous year. Before that, no one would have ever thought auto loans would go this far. But dealerships, automakers and banks have done good business with this country’s outstanding $1.2 billion auto debt – and others are likely to lock you into a long-term loan that could ensure perpetuity of the debt.

    The solution for the consumer is simple. Don’t look at monthly payments (now averaging $550 and $392 for new and used loans, respectively). Look at the total payment, including interest, for the entire loan, with all applicable taxes and fees, and consider whether it’s better to spend less on a car and save or invest the difference. Shop around for your loan and be aware that dealers can legally add a few percentage points to inflate the quote without telling you what they’re going to pocket.

    And if you think you need a new car but can’t afford it, you probably don’t. The glut of recent used vehicles on the market means that bargains are common in almost every vehicle segment. Most vehicles in the six- to 12-year-old range – what Experian calls the sweet spot – are reliable enough without warranties and significantly cheaper to own than a new car. No matter how good new cars are, they are never worth wasting your sleep or your financial security.

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