A record number of Americans are falling behind on car loan payments, as more than 7,000,000 car loans were past due by at least 90 days, according to data released by the New York Federal Reserve.
According to Forbes, there were 74,000,000 car loan accounts across the united states back in 2003.
Ten years later in 2013, that number increased to over 81,000,000.
And recently, the number is now over 100,000,000.
“We’re seeing that I think because, with technology, the automobiles are becoming more expensive,” said Matt Maxwell, with Reliable Chevrolet.
Maxwell said more loans means more potential defaults.
“You know, safety, things like that, the cars have gotten more expensive, and so payments are going up, so higher the payment, little bit tougher to make sometimes,” Maxwell said.
“It sounds to me like we have a lot of people who need to take a serious look at their spending habits,” said James Philpot, an associate professor of finance at MSU.
Philpot explained potential reasons why so many people are missing their car payments.
“Maybe consumers got overconfident and overreached, and it could be well okay I have this job now, but maybe the wage growth hasn’t quite kept up with the spending,” Philpot said.
“They don’t have any money down, they finance for the longest term, they go out and they decided, in 36 months, that they really would like a different car, and they really can’t afford to do that because they’re upside down,” said Debbie Bills, a consumer loan sales manager at Arvest Bank, “so what happens is when they’re financing that car back into the price into the new car they’re wanting, so it’s kind of a vicious cycle.”
Bills stressed the importance of doing research before purchasing a vehicle.
“Knowledge is power,” Bills explained, “so, if you have the knowledge before you go in, you’re not as apt to overpay for a car or to get yourself in a payment that you can’t really afford.”
Philpot said something to keep in mind is the “20, 4, and 10” rule.
The “20” stands for having at least a 20% down payment, “because that gives you a big cushion against getting inverted in the car, should you see a decrease in the value,” said Philpot.
“4” stands for trying to get the loan for four years, “not six, so that you can get the car paid for more quickly, well within its useful life period,” Philpot said.
And the “10” stands for using 10% of your monthly income on auto payments, Philpot said, “for some people, some of those numbers might not just be very realistic, but it’s a rule of thumb.”
Financial experts say in addition to making sure you can afford the vehicle it’s also important to budget for insurance, gas, maintenance, and all that extra money needed to own a car.