Eight million Californians have auto loans, but more and more struggle to pay them off
Californians are making much bigger auto loan payments nowadays than they were a decade ago, and more and more consumers are unable to make their loan payments.
That’s the key finding of a new study released Tuesday by the California Policy Lab at the University of California, Berkeley.
About 8 million Californians now have car loans and owe an average of about $24,900. They’re finding that often the loans take longer to pay off, while new car prices and interest rates continue to climb.
The number of people not making monthly auto loans payments on time has been growing for the last year and a half.
Prior to mid-2021, consumers got a lot of financial help from federal policies that provided some relief from sluggish economic conditions caused largely by the COVID pandemic.
The aid, which included state and federal stimulus payments, an increased federal child tax credit and programs that delayed some loan payments, “all functioned to prop up the balance sheets of most low and middle-income households,” the Lab report said.
But today, “with the withdrawal of those policies, financial distress indicators have rebounded,” it said.
In mid-2021, the Lab said, 1.5% of auto loans in California were more than 30 days overdue. By December 2022, the latest data available, that rate was up to 2.7%.
More and more people are borrowing money to buy cars. The number of state residents with auto loans has jumped 36% since 2012. The average amount they owe surged 51%, a figure the study called “startling.”
The consumer’s average monthly payment at the end of the last year was $598, up from $405 a decade ago. Consumers across credit ratings have seen increases in their payments and loan terms.
While the study did not explain the reasons behind the trends in auto loans, several factors are likely causes.
The price of new cars averaged 6.3% higher in February than a year earlier, according to the federal Bureau of Labor Statistics.
Interest rates also spiked last year, and appear to continue to be going up. The Federal Reserve has increased its key interest rate nine times in the past year, and that rate is now at its highest point in 15 years.
Matt Schulz, chief credit analyst at LendingTree, an online lending marketplace, found that nationally the average loan amount financed for a new vehicle increased to $41,445 in the fourth quarter of 2022, up from $39,834 a year earlier and $35,420 two years ago.
For used cars, the loan amount increased to $27,768 in the last quarter, from $27,390 the previous year and $22,643 two years ago. He did see loan amounts stabilizing, though. The data was compiled by Experian’s State of the Automotive Finance Market Report for the fourth quarter of 2022.
The trend in auto loans, the Lab found, is potentially troublesome. “This doesn’t bode well for consumers, especially when you consider how important having a car is for many Californians for getting to work, school, and household errands,” said Evan White, the Lab’s executive director.
