Car Loans Pass Student Loans To Become Largest Debt Other Than A Mortgage
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With an average transaction price of nearly $50,000, it’s no secret that new cars are basically just for rich people now. You can’t even buy a single new car for less than $20,000. If wages had kept up with the rising cost of a new car, that wouldn’t be as much of an issue, but here we are. And yet, people keep buying them even when they can’t afford them. In fact, it’s gotten so bad that Motor1 reports car loans have passed student loans to become the second-largest debt that Americans hold next to their mortgage.
Gen Z and Millenials Are Having Trouble Making Car Payments On Time
This, of course, isn’t helped by the fact that the pandemic choked new car supply and drove used car prices through the roof. Things aren’t nearly as bad as they were at the height of the pandemic, but it more or less broke the car market in the U.S., and we’re still recovering. Unfortunately for everyone currently trapped inside this country, having a car is basically a necessity, so it’s understandable that they would stretch their budgets to afford something safe and reliable.
Then again, some people stretch their budgets just because they think they deserve something shiny and new and will figure the math out later. Either way, auto debt is a big deal, and now at nine percent of all debt, it’s surpassed student loans and is coming for mortgages. As you can imagine, that isn’t great news for the economy. Delinquencies are approaching 2009 levels of bad, and it isn’t likely to get better for a while.
Part of the problem is that a lot of people overpaid for new cars during the pandemic. As the market corrects itself, they’re finding themselves underwater on their loans, and even if they wanted to sell, they could only do so at a loss. This also puts pressure on banks because even if they repossess a car, they probably can’t sell it for what they’re owed, which makes loans more expensive for everyone.
At this point, it feels like we’re just waiting for the bubble to burst. It can’t be sustainable, and the fallout is going to hurt all of us, but you never know. Maybe the folks with $1,400 car payments will figure out a way to turn it around.
