Car loan statistics
Everyone wants to peel off the lot in a new car. But not all buyers can peel back their stack of cash and hop in the driver’s seat without some type of financing.
Turns out when it comes to buying cars, a lot of us need a financial jump-start.
How much car loan debt do Americans take on to get behind the wheel?
In 2016, Americans applied for and racked up $564.6 billion in auto loans. By the end of 2017, that number had jumped to $568.6 billion.
The auto loan industry has seen consistent gains with no signs of slowing over the last six years. Still, many of us appear to be missing payments: 4.1% of active accounts were delinquent 90 days or more at the end of 2017.
A brief background on auto loans
A car loan allows a buyer to get behind the wheel without fronting the full cost of the vehicle. Sounds good, right? Well, most loans come with fees and interest that you pay back over the course of the loan.
For an idea of what auto loan companies look for before approving you, a middle-of-the-road credit score is 707. But even if your score is lower than that, you’ve got options for borrowing loot to buy a car. Many banks, credit unions, online lenders and dealerships specialize in auto loans.
While you might be able to find an unsecured auto loan, the majority are secured, using your car as collateral for the loan. Secured loans can mean lower APRs, saving you money in the long run, but you run the risk of having your car repossessed by the lender if you default on your loan.
How many Americans have car loans?
If you were in the hot seat, could you guess the percentage of Americans that are currently paying off a car loan? It’s likely more than you’d imagine: A high 44% of American adults — nearly half of us — rely on an auto loan to purchase a car.
Let’s look at how auto loans stack up each year.
Number of car loan accounts in the US by year
|Year||Number of accounts in millions|
Average loan amounts for new and used cars
Americans appear to have no problem signing on the dotted line to finance a vehicle. In 2017, the average loan amount for a new car was $31,099, up $509 from the previous year. When comparing 2016 to 2017, loan amounts and monthly payments increased in all categories:
- The average loan amount for a franchise used car was $21,275, up from $398 in 2016.
- The average loan amount for an independent used car was $17,002, up from $348 in 2016.
- Average monthly payments for a franchise used car jumped an extra $8.
- Average monthly payments for an independent used car bumped up by $7.
Getting a loan for a new car could score you a low average interest rate of 5.11%. However, franchise cars might come with an average loan rate of 7.68%, with an independently used car’s rate averaging 11.48% — more than double that of a loan on a brand new car.
Average loan amount, monthly payment and rate by car type
|New cars||Franchise used cars||Independent used cars|
|Average loan amount||$31,099||$21,375||$17,002|
|Average monthly payment||$515||$398||$348|
|Average interest rate||5.11%||7.68%||11.48%|
Auto loans vs. other types of debt
Aside from using a loan to get from Point A to Point B, Americans take on debt for homes, school and even not-so-big purchases. Mortgages make up 67.63% of debt in America — which makes sense, considering a house is typically the most expensive purchase people make in their lifetime.
Because not many people can afford to pay thousands of dollars out of pocket for college, that student loans account for 10.5% of personal debt shouldn’t surprise anyone.
Auto loans inched to 9.28% in 2017, from 9.2% in 2016. And the two smallest forms of debt in America last year were credit cards (6.17%) and home equity lines of credit (3.48%).
Here’s how auto loan debt has faired in terms of total US debt balance since 2003.
Car loan percentage of total US debt balance
|Year||Percentage of debt balance|
Auto loans and your credit score
For the lowest rates and fees, most auto loans require you to meet eligibility requirements — your credit score of utmost importance. Consumers with credit scores of between 601 and 780 make up the demographic auto lenders deal with most.
In the auto loans market, credit scores are typically broken down into five categories: deep subprime, subprime, nonprime, prime and super prime.
Here’s how each group is borrowing for their set of wheels:
Percent of car loan originations by credit score
Percentages of deep subprime, subprime and nonprime auto loan originations slightly decreased in 2017 — however, prime and super prime auto loans saw increases.
Where do Americans get their auto loans?
Consumers with prime credit scores represented the majority of borrowers. But who’s lending the most when it comes to auto loans?
The total active loan amount across all lenders for 2017 was $1.129 trillion — 😬.
Statistics reveal that people prefer going through banks to get a car loan. In 2017, banks reported an astonishing $368 billion in open car loans — that’s equal to the price tag of about 4.9 million Model S Teslas! Credit unions had the second highest open auto loan balance at $313 billion followed by captive auto companies at $259 billion and finance companies at $189 billion.
What's a captive auto company?
A captive auto company is a subdivision of a car manufacturer that offers auto loans — think companies like Ford, Honda, Toyota, Chrysler and so on.
At the dealership, type of lender cuts out the middleman: The whole car-buying experience is done in-house. It’s a win-win for the parent company, because it’s not only selling you a car, but also making money from the financing.
Total open balance amount by lender type
We gathered the total open balance amount for each type of lender over the past few years below.
|All banks||Captive auto||Credit unions||Finance companies|
|2017||$368 billion||$259 billion||$313 billion||$189 billion|
|2016||$364 billion||$252 billion||$277 billion||$179 billion|
|2015||$337 billion||$244 billion||$241 billion||$166 billion|
Auto loan delinquency rates
The number of delinquent accounts 90 days overdue increased to 4.05% in 2017 from 3.75% in 2016. The percentage of delinquent accounts has slowly swelled over the past three years:
|Year||Percentage of loans 90+ days delinquent|
Even while the unemployment rate dropped to 4.1% in 2017 from 4.8% in 2016, Americans may still be having a hard time keeping up with their finances. Or are they taking on too much at once?
Either way, the last thing you want to do is let your car loan account drift into delinquent status. Late or missing payments can tarnish your credit score and expose the vehicle attached to the loan to repossession by the lender — meaning those payments you made earlier were for nothing.
4 tips to avoid defaulting on a car loan
Setting up autopay is just one way to avoid missing a due date or even a payment altogether. Here are other steps to avoid defaulting on your car loan:
- Refinance your loan. If your original auto came with unfavorable interest rates and high fees, you might be able to find another provider offering cheaper, more competitive terms.
- Ask about deferment. By explaining your situation to your auto loan provider — no matter how tough the conversation — it might be willing to defer payments for specified period, allowing you to catch up on your other financial obligations.
- Sell your car. It’s a tough decision, but if you consistently struggle to make monthly payments, look into selling your car and using that money to pay back the loan.
- Get professional help. If you can’t figure out how to make your payments work, a financial consultant might be able to guide you through planning a budget to get back on the right track.
Consumers default on their auto loans for many reasons that include expensive fees, high interest rates or monthly payments that don’t realistically fit into a working budget. And loan approval doesn’t mean that you can afford the car you want, especially for subprime applicants approved for sky-high rates.
There’s no denying that Americans are leaning on auto loans: Both originations and average loan amounts have increased from 2016 to 2017. What’s possibly shocking is that even while unemployment is down, delinquent car loan accounts are at the highest they’ve been in the past five years.
On a road map to guide you to financial freedom, think of your credit score like the oil in your car. You need to properly maintain oil levels for your car to perform at maximum efficiency, and the same goes for your credit score.
By responsibly managing your finances, you can improve your creditworthiness, resulting in lower interest rates, stronger negotiating power, higher lines of credit and better chances of approval that can ultimately help when you’re trying to secure financial help from a lender down the road.