According to a recent data by the Federal Bank Reserve of New York, about 43 percent of the entire American adult population have car loans. That translates to a record number of 107 million people making ends meet to pay off their rides.
Back in 2012, there were about 80 million Americans with car debts but due to combined factors influencing lending and loan accessibility, car debts have skyrocketed in the past years. While there were more mortgage loans five years ago, Americans now owe more in collective car debts than they do in home loans.
But what’s the panic all about?
That is actually fine, as long as people continue to pay their monthly dues so the money goes back in circulation. But that is not the case. In fact, there is a current panic in the rise of subprime auto loans and delinquencies, a combination that nobody really likes.
Right now, there are about 6 million people who are delinquent, or are 90 days or more behind on their car loan payments. The rise in delinquencies and subprime credit availability is attributed to the easing of loan qualifications among many lenders. Meaning, giving out loans to risky borrowers. Once these borrowers default, the cars are repossessed. This increase in repossession will drive down used vehicle prices.
A trillion trouble
Currently, the great American auto loan debt sits at $1.2 trillion, 25 percent of which are from the subprime market. If the current trend in delinquencies continue, it might lead to a disastrous economic collapse. This may not par the Great Recession in 2008 in intensity but could nevertheless shake the foundation of the economy.
How does this affect you as a borrower?