Auto loan debt and delinquencies are increasing rapidly
Delinquencies for auto loans rose at a faster rate last year than for any other loan category.
Auto loan debt is growing rapidly as more Americans rely on loans, and less on their own money, when purchasing their new cars. As car debt rises rapidly, more Americans are beginning to struggle to keep up with payments. According to CNBC, auto loan delinquencies rose at a faster rate in the last quarter of 2016 than for any other loan category. The problem has been compounded by the rise of subprime auto loans, which offer higher interest rates to consumers who have lower credit and often less of an ability to make the monthly payments.
Auto loans are on the rise
As CNN reports, recent data released by the Federal Reserve Bank of New York shows that 107 million Americans currently have an outstanding auto loan. That represents about 43 percent of the adult population and is a dramatic jump when compared to recent years. In 2012, for example, only 80 million people had outstanding car loans.
Auto loans are now rising faster than mortgages and U.S. consumers are now carrying a record-breaking $1 trillion in car loan debt. The steep rise in auto loans is being driven by a number of factors, including a recovering economy, low interest rates, and, especially when compared to mortgages, loose lending standards.
Consumers feeling the squeeze
While the increase in auto loans has been great for the automotive industry, there are signs that the bubble may be about to burst. As overall auto loans have boomed, so have delinquencies. Data from the American Bankers’ Association shows that auto loan delinquencies, which is a loan that is 30 days or more overdue, rose faster in the last quarter of 2016 than for any other loan category. Furthermore, six million Americans have an auto loan payment that is at least 90 days overdue, which puts their vehicles at serious risk of possession.
Much of the problem has been driven by subprime loans. Like the subprime mortgages that were largely responsible for the 2008 Financial Crisis, subprime auto loans come with high interest rates and are typically offered to consumers who have poor credit. While the high interest rates are extremely profitable for the lender, consumers often struggle to keep up with the payments. Making the situation even worse is that many people rely on their vehicles to get to and from work, meaning that if their car or truck gets repossessed they often lose their jobs and, in turn, have an even harder time paying down outstanding debts.
Getting help with debt
For those who are struggling to make a dent in their auto or any other type of debt then it may be time to talk to a bankruptcy attorney. Bankruptcy is not for everyone, but in many situations it can be an effective way of putting creditor phone calls to a halt and getting back on firmer financial ground.