Americans Taking Out Longer Loans To Afford New Cars
More Americans are taking loans with longer terms in order to afford a new car, resulting in a struggling middle class.
Americans are seeking are car loans that sometimes have repayment periods of over seven years. The longer the payment period, the more affordable the monthly payment. Longer payment periods indicate that middle class families are no longer able to afford buying a new car.
The longer payment period also means that some Americans will still be saddled with the debt of their auto purchase when that car begins to fail and must be traded in for a new one. Close to 1/3rd of auto loans taken during the first half of 2019 had repayment periods of longer than 6 years. That is a sharp increase from that figure being 10% only 10 years ago.
“People can get into very expensive cars. Households are taking on, on average, more risk,” said Bronson Argyle, a professor at Brigham Young University in Provo, Utah, whose research focuses on consumer credit.
The need for auto loans has become more pronounced in recent years. Currently, only 18% of households have the financial assets needed to entirely cover the cost of a new car.