Auto loan delinquency rates increase in 2018

Almost 5% of auto loans were more than 90 days late as calendar year 2018 closed out. This is approaching record high levels. Not only are more loans going unpaid or being paid very late (90 days), but consumers continue to borrow more money to pay for a new or used car. The two factors both bode ill for consumers and the economy.

The almost 5% rate of delinquent auto loans (per the New York Federal Reserve) is about a 77% increase in 5 years. More people are falling behind in 2018 as they continue to live beyond their means…credit card debt is at record highs, auto loan balances are at record highs, and families continue to borrow money for other consumer goods.

Americans continue to stretch their budgets to get a new (or used) automobile and go more on more into debt for a car. The average amount of money borrowed from a bank or lender was $31,099 (for a new car). This placed the monthly payment at $515 per month. Even those households that decide to buy a used car, they are also borrowing a record money of money, with that amount at $21,375 per month with a monthly payment of $400 per month. Interest rates generally range from 4 to 5%.

The average selling price of a new car is around $35,000 according to Experian. That means that shoppers are borrowing $31K and only putting down about 4K in cash (which is generally from the trade in of an old car), so they are borrowing about 90% of the total cost.

Auto loans are horrible types of debt

The sad part is that as people borrow more and more to pay for a more, this type of borrowing is considered to be bad debt. A car is a depreciating asset…it goes down in value as soon as you literally drive it off the lot. And it continues to decrease in value by the month. Borrowing money to pay for goods like that is a horrible idea. Read more on good debt vs bad debt.

With Americans borrowing over 31K in 2018, and placing more and more “emphasis” on a car (which really serves no other purpose than in getting from point A to point B), no wonder they have no savings, retirement, and millions have financial stress.

The lack of financial literacy in this country always astounds me. How many people lack basic skills, have poor match skills (which being good at math is one key to financial literacy), and lack knowledge…and also make no effort to learn. Most people also pursue materialism at the expense of everything else, including borrowing more money then they can afford for a car. The increasing rate of delinquent auto loans, as well as people borrowing so much money, just go to reinforce that.

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