At the end of 2018, more than 7 million Americans had auto loans that were at least three months delinquent, according to the Federal Reserve Bank of New York. That number “is more than a million more troubled borrowers than there had been at the end of 2010,” during the height of a financial recession, the New York Fed wrote in a blog post.
Part of what accounts for this staggering figure is that people are taking out more auto loans. But it could also indicate a change in the economy that few would expect during a time of job growth and low unemployment.
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“The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market,” according to the New York Fed.
Part of what makes this phenomenon so eye-catching is that people tend to pay their auto loans before all else, The Washington Post reports. Because cars are essential for travel and can act as shelter, Americans are loathe to allow their auto loans to become delinquent.
“Your car loan is your No. 1 priority in terms of payment,” Michael Taiano, a senior director at Fitch Ratings, told The Post. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher-priority payment than a home mortgage or rent.”
The New York Fed found that adults under 30 years old saw a sharp spike between 2014 and 2016 in the percentage of auto loans in serious delinquency among their age group, suggesting that young people are especially struggling to pay off their debt. That spike has not gone back down, despite a thriving economy.
“Predatory lending practices and a lack of real transportation options leave many households trapped in debt with few ways out,” Faye Park, president of the U.S. Public Interest Research Group, told The Post.
When a car owner misses multiple payments on a loan, their vehicle is likely to get repossessed, The Post reports. Some cars can be tracked for location, or can even be modified so that a driver who has failed to make a payment can’t turn it on.
If a car is repossessed, The Post notes, that makes everything more difficult for its former owner, who now struggles to make it into work or misses other important appointments.
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