For most Americans, owning a car is a necessity. If you don’t have one, you won’t get anywhere, the biggest problem is if you have a job that doesn’t allow remote work. We are now seeing an increasing number of these customers who default on car loans they may not be able to afford it, which seems bad.
NBC statements that while car repossessions dropped significantly in the early stages of the pandemic, recently, the number of borrowers behind on their car payments has returned to pre-pandemic levels. And for those in the lower income bracket, the default rate is higher than it was in 2019. Industry analysts are said to fear that this trend will continue into 2023.
In fact, it could be worse as the average payment for a new car has increased by 26 percent since 2019. Now it’s $718 a month, and one in six new car buyers pay $1,000 a month or more. Unemployment remains low, and gas prices continue to fall, but many goods and services are now more expensive than they were a few years ago.
“This foreclosure is happening to people who couldn’t afford that $500 or $600 a month in monthly payments two years ago, but now everything else in their lives is so expensive,” said Ivan Drury, director of information for Edmunds. NBC. “That’s where we start to see people’s dispossession happen because it’s just something that starts to overwhelm you.”
The Consumer Financial Protection Bureau is said to be particularly concerned about loans from 2021 and 2022, when new car prices were very high, and so-called subprime borrowers with below-average credit scores.
“The loans taken out in these years are doing worse than in previous years because those customers had to finance the cars when the bonds were tightened and the prices started to rise,” he said. Ryan Kelly, acting director of the CFPB’s financial system. “Those consumers have been hit by double inflation. First, when they have to pay for the car after the prices go up, and then when they have to put gas in the car after the Russia-Ukraine conflict started. So there’s just a lot of consumer pressure. “
But despite analysts’ concerns, they don’t think we’ll see numbers anywhere near where they were in 2008 and 2009. Last quarter, auto loan delinquencies were at 2.2 percent, which is lower than the 2.35 percent we saw in the third. quarter of 2019. An Ally Financial report believes that number could hit 3.8 percent. Meanwhile, in 2009, crime was over 4 percent.
Unfortunately, for consumers, it doesn’t look like conditions will change in their favor anytime soon. Interest rates will remain high, and the limited supply of new vehicles is likely to keep new and used car prices high while companies continue to raise prices faster than inflation. So if you don’t have to buy a new car, it’s probably wise to hold off.
“I [don’t] “Think about what happens to people who sign up for new loans today,” said Drury. “It’s not going to get any better if we see these high fees.”