What experts are calling the next potential credit crisis surrounds a trend where American consumers are entering into larger automobile loans for longer terms.
According to the Federal Reserve, the length of the average automobile loan is five years, four months, an increase in the average loan length of six months since 2002. Additionally, nearly 45% of loans written today are for longer than six years, with some lenders offering seven-year and eight year length financing.
At the same time, the amount of money drivers owe on their cars is soaring. In an article in the Los Angeles Times entitled “New Cars That Are Fully Loaded — With Debt”, writer Ken Bensinger reports that the average amount financed by borrows hit $30,738, which is up $3,500 from this time last year. Bensinger also reports that today’s average car owner owes more on their vehicle than the vehicle is worth.
Mr. Bensigner’s article is interesting reading. It points out the fact that consumers run the risk of becoming more and more in debt by rolling over the outstanding balance on a used car into the new car payment while extending the length of the loan in order to keep the monthly payments down.
Buying a new car while owing on an outstanding car loan is risky business and also puts the buyer at a definite disadvantage when trying to negotiate the best deal on a new car. Think about your long term financial picture before going to look at new cars.
