For most Americans, owning a car is a necessity. If you don’t have one, you can’t go anywhere, which is a big problem if you have a job that doesn’t allow remote work. Now we see the number of consumers who default on car loans they can’t afford it, which seems like a bad thing.
NBC reports that even though car foreclosures dropped sharply at the beginning of the pandemic, recently, the number of borrowers who are about to repay their car loans has returned to pre-pandemic levels. And for those with very low incomes, the minimum interest rate is higher than it was in 2019. Industry experts say they fear this trend will continue until 2023.
In fact, it can get worse the average monthly payment for a new car has increased by 26 percent since 2019. It is currently $718 a month, and one in six new car buyers are paying $1,000 a month or more. Unemployment remains low, and gas prices continue to fall, but many goods and services now cost more than they did a few years ago.
“These foreclosures are happening to people who could afford $500 or $600 a month two years ago, but now everything else in their lives is expensive,” said Ivan Drury, director of research for Edmunds. NBC. “That’s where we’re starting to see the payback happen because everything else is starting to bother you.”
The Consumer Financial Protection Bureau says it is particularly concerned about loans from 2021 and 2022, when new car prices were at their highest, and so-called subprime borrowers with low credit.
“The loans that were given in those years are doing much better than the previous years because the buyers had to pay for the cars when the goods became cheaper and the prices started to rise,” he said. Ryan Kelly, director of the auto finance program at the CFPB. “The consumers were affected by the increase in prices twice. First, when they had money for the car after the price increase, and then when they had to put gas in the car after the Russia-Ukraine conflict started. Then there are many concerns for consumers.”
But although experts are concerned, they do not think we will see numbers close to where they were in 2008 and 2009. Last quarter, car loan delinquencies were at 2.2 percent, which is lower than the 2.35 percent we saw in the third quarter. quarter of 2019. Ally Financial says it believes the figure could hit 3.8 percent. Meanwhile, in 2009, crime was over 4 percent.
Unfortunately, for consumers, it doesn’t look like conditions will change anytime soon. Interest rates will remain high, and the shortage of new cars will keep new and used car prices high as companies continue to raise prices at a rate higher than inflation. So if you don’t have to buy a new car, it’s probably best to hold off.
“Me [don’t] imagine what is happening to people applying for new loans today,” said Drury. “It’s not going to be good when we see that these wages are so high.”