The economy may be considered “slow” but that doesn’t appear to be stopping folks from buying cars. This is evidenced by the news that, for the first time, the total amount of outstanding car loans has topped $1 trillion.
After getting soaked by bad loans (their own fault), the industry’s lending practices have changed. They’re being more selective on who they give the best rates to. They learned the hard way that throwing piles of money at everyone under the sun, regardless of income and ability to pay, might eventually bite them in the butt.
The average car payment is now about $400 a month, the average amount financed is over $21,000, and the average amount still owed by consumers is about $18,000 per person. But the availability of so much low-cost money (highly qualified consumers can get car loans at interest rates below 3%) is tempting consumers to take on car debt at a faster and faster rate. One troubling sign is that the average car loan balance is rising at a faster rate than mortgage balances are
For now, consumers are keeping on top of this mountain of debt. Deliquency rates for car loans remain low (<1% of car loans are more than 90 days in arrears) as consumers come out of the Great Recession less able to tie themselves into damaging subprime loans that used to be the norms in the industry.
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This post was published on January 5, 2016 and was updated on August 2, 2022.