With the average loan term exceeding 60 months and $30,000, can people still afford new cars, and how do you avoid falling into the trap of long-term debt?
- A Wall Street Journal report says that a third of all new-vehicle loans in the United States are longer than six years and concludes that “America’s middle class can’t afford its cars.”
- The paper also reported that only 18 percent of U.S. households can afford to pay cash for a new car.
- Seven million people are at least 90 days behind on their payments, so is the fault with the lenders or people who are living beyond their means—or both?
No one needs to 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 to. There’s a problem with that: New-car loans are the longest and most expensive they’ve ever been, and too many people are rolling over their existing loans into new loans when they trade. Unchecked, it 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 percent more than during the third quarter in 2014, is normal at standard 3 percent annual inflation rates). For a used car, it was $20,156, or only 9 percent more. While delinquencies remained stable even as some seven million people are 90 days or more behind on payments, the brewing problem relates to loans that last six years or more.