The auto loan market continues to be one of the biggest bubbles in the U.S. economy today. With auto loans topping $1 trillion for the first time in history a couple of years ago, it seems motorists are still getting deeper into debt for their boxes on wheels.
According to Experian’s State of the Automotive Finance Market report, the average new car loan surged $724 year-over-year to a whopping $30,958 in the second quarter of 2018. Used car loans also spiked, rising $520 to $19,708.
This represents a record amount of monthly payments for both new and used automobiles.
In total, U.S. motorists hold $1.149 trillion in outstanding auto loan debt, up from $1.027 trillion in 2016.
What’s the biggest problem for the market? It seems an obvious concern is the “trade-in treadmill.”
From March 2017’s “‘Trade-in treadmill’ causing credit risk for lenders in auto loan market“:
Moody’s Investors Service published a report Monday (via Reuters) that took a look at how much of a mess and train wreck the auto loan market really is. With U.S. auto sales reaching their peak, it has become imperative to finance car loans, which, at the same time, will boost credit risk for auto lenders.
Since the financial crisis, auto sales have ballooned, and sales of cars and trucks hit a record annual high in 2016 with 17.55 million units – auto debt also soared 48 percent in the same time period. Moody’s, however, projects that U.S. new vehicle sales will decline to 17.4 million units this year.
But that isn’t the worst of it.
Last year, researchers note, approximately one-third of U.S. vehicle trade-ins had outstanding loans that were worth more than the cars themselves. This, says one of the report authors, poses a significant risk to lenders.
Fasten your seatbelts. It’s going to be a bumpy night.
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