Are Money Lending Policies Making Consumers More Debted Than Before?
There is a belief and it is very true that if you are in debt and if you live in America, you are certainly not alone. In fact, it is the scenario in almost every country. In the latest quarterly report of the Federal Reserve Bank of New York it is seen that:
- Household debtsin US collectively amounted to $13.54 trillion
- It has risen continually for 18 consecutive quarters and
- It is 21% higher than the amount of 2008 which was at $12.7 trillion, which ideally was the peak of the Great Recession.
The most worrying factor of the report was that it mentioned separately that among all loan accounts, the auto loans accounted for the major number when it came to delinquencies of 90 days or more. The number is a staggering 7 million!
What Economists Say
Economists say that this is signal of the struggling American to pay the monthly bills in spite of living in an economy that is considered to be the strongest and the country that has the lowest rate of unemployment.
- Research says that roughly 6.5% of all auto finance loan accounts are more than 90days delinquent.
- Student loan debts edged a bit higher amounting to $1.46 trillion in the fourth quarter as well as the serious delinquency rates in this category also was found to be much higher than any other type of debt.
- Mortgage debt however accounted for the major part of loan defaults amounting to nearly $9.12 trillion in the same period.
The long and short of the story is that Americans are drowning in auto loan debt.
Rise In Average Car Loan
A new report from Cal-PIRG or The California Public Interest Research Group suggests that:
- The average car loan of the Americans has increased 75% over the last decade
- In all the amount of money that the Americans owe in auto loans is more than $1.2 trillion
The reasons for such an increase could be that:
- The Americans are taking out loans more than they can afford to repay
- They are also taking out larger amounts of loan according to their affordability and
- They are taking out loans for a longer period of time.
In an interview to NBC 7 Responds, Emily Rusch, the executive director for Cal-PIRG said that there could be several other reasons for the rise in auto loans and high rate of delinquency. It includes:
- Insufficient levels of mass transit
- Existence and predominance of predatory lenders
- Bad practices followed by lenders to close a deal rather considering the prospects of it
- Loans given out to people with low credit and income who are sure to be unable to repay and lots more.
In such situations, Rusch suggests that it is the consumers who should do the needful in order to save them from going underwater on their car loans or find it upside down, always and forever and spend most of their time looking at NationaldebtRelief.com or other for a suitable way to come out of the debt trap. He suggests several ways in which the consumers can do that.
- The most significant one is to do research before selecting a dealership. Ideally, banks and credit unions provide quotes on different rate of interests on car loans and will even pre-approve such loans when one visits their brand office or even over the phone.
- Apart from that, Rusch told NBC 7 Responds that consumers can also avoid falling into a debt trap by declining to take on a few of the expensive add-ons if not all offered to them at the dealership such as extended warranties and others. This will help them to keep their monthly payments down by a considerable extent.
- In addition to that, Ruschsuggested that consumers should also reject offers such as extended length of a car loaneven if it makes the monthly car payments more. He suggests that extended tenuremay reduce the monthly payments but paying low amount for a longer period of time will eventually make the customer end up paying more in interest making their loans far costlier.
All these are tried and tested ways in which any consumer can keep their loans well within their manageable limits. This will save them from falling into the debt trap never to be able to come out of it and restore the health of their finance.
Auto Loans And Household Debt
The surging auto loans in turn helps in fuelling the rise in US household debts. Thanks to the relaxed auto lending policy, the auto loan market has always flourished and has been the most popular financing segment among the American consumers over the past two decades.
With such prevalence among the US populace, the auto lending market has drawn more and more citizens towards it resulting in the rise in number of auto loan accounts. This may sound to be very promising for the auto lending market and more encouraging for the US citizens who cannot live without a car. However there are a few catches in it such as:
- Most of the lenders on the market are predatory
- They lend without considering the credibility of the borrower
- They are more interested in raising the account numbers and their business volumes.
This resulted in the rise in auto loan accounts alarmingly over the last seven years or so, as the Federal Reserve Bank of New York reports. The report also says that, the number of Americans with an auto loan has risen by 35% and auto loans have long overtook mortgages in 2013 and has been pulling further ahead since then every year.
The Eventual Results
With such lending practices in the auto sector, it has affected the consumers, the auto lending market as well as the economy on the whole. The consumers are now in a larger pool of debt and the quality of the auto loan is deteriorating. On the other hand, the economy is taking a hit due to the rise in number of defaults.