Average auto loan balances increase as we continue spending more than we can afford
A tendency for an increased amount of overall auto loan debt is in part due to the desire of Americans for more expensive vehicles. The average amount outstanding on an auto loan increased to $11,102 in 2018 from $9,687 in 2013. This includes all types of auto loans outstanding not just those 90+ days delinquent.
Perhaps accustomed to instant gratification, we’re taking on more risk to afford the luxury items we crave. The result? About a 15% increase in the average auto loan balance outstanding per account from 2013 to 2018.
Average auto loan balance outstanding per account
Americans can’t keep up with interest rates
A sharp increase in delinquency rates should make you nervous. Currently, consumer demand for vehicles is rising alongside auto prices.
When alarming rates of car owners find themselves unable to pay off their auto loans, however, loan lenders are likely to declare bankruptcy as well — a situation economists call an auto bubble. The bubble can burst when both owners and lenders fall into bankruptcy, leading to a widespread negative effect on the economy. In the worst case, a recession.
Comparing financing rates on a 48-month auto loan against the percentage of delinquent balances of 90 days or more, we discovered that both numbers increased overall since 2013. In short, as financing rates on auto loans increase, delinquent balances appear to increase as well.
Financing rates on a 48-month auto loan
% of 90-day delinquent balances
The takeaway: Because a lender approves you for a loan doesn’t mean that you can afford the repayments. If you opt to borrow money, carefully read the terms and conditions to understand your potential payments and interest rates. To position yourself for successful repayments, budget at least six months of savings to cover living expenses before you commit to a loan.
To learn how to compare your options before deciding on a lender, read our comprehensive guide to auto loans.
September 18, 2018
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