Car Loan Balances Hit Record $866B
This bodes well for the economy, as a boom in new and used car sales suggests consumers are now finally starting to release the pent-up demand that was built during the lean recovery years following the Great Recession. What is most troubling about the findings is that consumers are stretching their payments over longer loan periods.
According to Edmunds.com, new car loans now average a record 67.2 months, at an average interest rate of about 4.5%. For all of 2014, the average transaction price of a new vehicle was $32,386, Edmunds says. While this isn’t a great cause for alarm, it does seem a little silly for lenders/dealerships to encourage borrowers to buy more expensive cars by offering an extended payment period. Not to mention the added interest that will accrue during the added months of the loan can ultimately turn that $30K car into a $40-45K total purchase.
Much has been written about the $1.1 trillion (and counting) student loan bubble and how that will be the next credit line to “burst,” which can potentially trigger another recession. It has eclipsed credit card debt and auto loans to become the largest category of non-housing-related consumer debt. Hopefully these “stretch” auto payments are just a fad and consumers go back to more traditional repayment plans.