Car Loans Cause Financial Problems for Americans

According to the New York Federal reserve, more than seven million Americans were behind on their car payments at the end of 2018.

This may be the next fail for bankers, as many industry experts say we are on the verge of seeing the auto loan bubble burst. Currently, Americans take out 107 million new car loans each year. The number has risen steadily since 2011 when it stood at 80 million.

Those least able to afford the highest interest rates are targeted for sub-prime auto loans that put them in a hard-to-manage debt cycle. Banks lend up to 150% of the value of a car, which dealerships tend to inflate. As a result, vehicle owners are “upside down” on their loan, meaning they owe more than the car is worth.

This is a nearly exact replica of the housing crisis of 2007-2009, with national banks at the center of the problem again. Dealerships are able to easily get financing for nearly any customer that walks through their doors in search of a vehicle. With a “fair” FICO credit score, that customer can get a loan for 150% of a car’s value. High payments set consumers up for financial failure. These vehicle loans are simply personal loans with a small amount of collateral.

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5 years ago