Reasons For High Car Loans Defaults In Spite Of A Great Economy

Looking at the present scenario you may tend to think why there are so many car defaults when the country’s economy is doing so well. It is true that car loan defaults are on a record high, especially in the US, a country which is supposed to have a great economy. Well, to understand the picture, you will have to look at the bigger part of it and go deeper into the matter.

Start with the new predatory lending techniques that target low-income buyers and even people with bad credit at times, depending on their lending policy. Car loans, or any other loan or that matter is easier to enable them to get behind the wheels far more easily. However, for these car buyers, it is harder to escape the debt trap no matter how fast they press on the accelerator!

You may also have noticed that over the year the rise in auto loan debt in the US has been significant and there is no sign of its showing any signs of slowing down, sooner or later. According to a recent Finder analysis-data of Federal Reserve Bank of New York data, it is revealed that in 2017 the amount of loan on US citizens for their car was$568.6 billion. The report also showed that Americans are racking up a huge amount of debt while applying for car loans, still. The report showed that:

  • The average of money borrowed to buy a new car by an average person is about $31,099 and the average monthly repayment for these loans are about $515.
  • On the other hand, the average amount of a car loan taken out to buy a used car was about $21,375 and the EMI of such loans came up to $398.

The report also showed that most of these loans are taken out from the banks which amounted to about $368 billion of the total amount in open car loans. You know, with this amount you can buy roughly about 4.9 million Model S Teslas!

The Loan Account Picture

When you look at the total figure considering all lenders across the nation, the amount will come out to a colossal $1.129 trillion. In fact and according to the Finder Analysis data, about 44% of US adults rely on a loan now to finance a car purchase and the number is steeply and continually rising.

When you consider the picture from about a decade back you will see that:

  • In 2003there were only about 74 million car loan accounts across the US
  • By 2013 that amount increased to 81.33 million and
  • In recent years this total number of accounts has reached a staggering high of 108.66 million.

This means that more and more Americans are drowning in debt now. It is seen that a growing number of people now owns a car on a loan which they cannot afford to repay. It is quite understandable why they spend most of the times in a futile effort for making arrangements for their money every month. It not only affects their productivity but also hits the economy as well. Failing to make any arrangements on their own, they often resort to different debt relief options and look for viable options for them at different reliable and reputed debt relief sites of which NationaldebtRelief.comhappens to be the first choice.

The auto loan landscape

Auto debit is supposedly the most troubling debts out of all debt forms not only for the general public but it seems that the ever-growing auto loan landscape is slowly but surely crippling the economy. In the modern American economy, the study shows that:

  • Mortgages make up 67.63% of all US debts
  • Student loans account for 10.5% of it and
  • Auto loans have already reached 9.28% of US debts.

Now there are several reasons for auto debts to be rising in the US. It is not only about the liberal lending policy of loans and their easy availability but also for several other reasons.

Access to a car in the US is virtually a requirement than a luxury to anyone wanting to live and work here. Be it the jobs or shops, doctors or daycare, all seem to be unreachable by transit, especially public transportation and too far if not impossible to reach by foot, a recent research shows.

It is also revealed through these researches that:

  • Owning a correlatively makes ones’ life more comfortable
  • It helps people to have a more stable job and
  • In turn, it makes their bank accounts more flush.

However, a few recent reports bring up an increasingly worrying picture of this ever-increasing auto loan landscape.

First, according to the new data from the Federal Reserve Bank of New York:

  • It is almost 7 million Americans found to be behind on their car loan payments by at least three months which is about a million higher than what it was at the end of the last recession.
  • This growth is commensurate with the overall expansion of the auto loan market overall and the amount is about $1.26 trillion which is a 75% increase from the last recession.

Then the experts also say that Americans usually prioritize their debts in the following order simply because cars are so essential to them:

  • Auto loans
  • House first and then
  • Credit card and others.

Still, they fall behind on their loans.

Another new paper by the U.S. Public Interest Research Group explains it is the increasing investor demand for high yielding bonds that has led the lenders to loosen their lending standards for car loans. The host of new automotive lending options should be controlled to prevent these lenders from becoming fundamentally predatory so that the American can drive their cars with its debt on their shoulders not as a burden but as a responsibility towards their lenders providing them comfort.

The growing number of people defaulting on their car loans is a serious signal to the economy and also to the government. It is a sign of severing financial duress for the households which experts say should take care of.