Auto loan debt doubled in the last decade, more than any other debt
Americans took on car loans faster than any other debt in the last decade, a trend that held steady during the pandemic. Now U.S. households owe two times more on auto loans than their credit cards and almost as much as student loans.
Auto debt reached $1.42 trillion in the second quarter of 2021, doubling over the last 10 years, according to the Federal Reserve Bank of New York’s latest report on household debt and credit. Auto debt is now almost as large as student loan debt, which reached $1.57 trillion in the second quarter and grew 87% over the last decade.
“The balances have been just continuing to grow over the last 10-15 years,” Melinda Zabritski, Experian’s senior director of automotive financial solutions, told Yahoo Money. “It's just a constant steady increase. Every year, every quarter is just continually growing.”
‘More people are financing vehicles’
The average amount of loans and the length of the term have also grown.
The average amount financed for new cars increased by 40% over the last 10 years, reaching $35,392 in the first quarter of 2021 from $25,400 a decade ago, according to data by Experian. For used cars, the loan amount increased by 35% over the same period, hitting $22,375 in the first quarter from $16,623 a decade ago.
The average new car loan term is 69 months — or nearly six years — up from 63 months 10 years ago. For used cars, the average term was 66 weeks in the first quarter of 2021, increasing from 58.6 months a decade ago, according to Experian.
“We do continue to see the average term increase for both new and used vehicles,” Zabritski said. “The 72-month term category has become the most common loan term.”
‘Shift in consumer preferences’
The increase in the overall auto loan debt has been driven by two main factors.
First, the value of vehicles has been increasing over the last decade with auto technology
costing more. Second, there's been a shift in the type of vehicle that Amercicans buy, with drivers moving from small economy cars to SUVs, which are more expensive.
“It's all tied to auto vehicle values,” Satyan Merchant, senior vice president of TransUnion’s auto business, told Yahoo Money. “People are seeking to purchase more expensive vehicles… there's also a shift in consumer preferences away from smaller vehicles like sedans to larger vehicles like SUVs.”
‘Doing a good job of keeping their commitments’
The growth in auto loans debt was even more rapid during the pandemic.
One reason was pent-up demand after dealerships closed earlier in 2020. Additionally, both new and used car prices are rapidly increasing, partly due to supply constraints that kept automakers from keeping up with demand.
Americans also had more money to spend in the last year, largely because of government relief programs like stimulus checks and limited spending on travel and dining out.
At the same time, delinquencies didn’t increase during the pandemic. Thirty-day delinquencies were at 1.55% in the first quarter of this year, down from 1.89% last year and lower than 1.98% in 2019.
“We're not really seeing any uptick in delinquencies,” Zabritski said. “Consumers are doing a good job of keeping their commitments.”
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