There’s been another record broken again in the United States, and it’s not one to be proud of. This time, a record 7 million Americans are 3 months behind on their car payments. And this is definitely not good for the economy.
“The New York Fed said that there were over a million more ‘troubled borrowers’ at the end of 2018 than there were in 2010, when unemployment hit 10 percent and the auto loan delinquency rate peaked. Today, unemployment is 4 percent and job openings are at an all-time high, yet a significant number of people cannot pay their car loan,” Liberty Street Economics reported.
The year 2018 had the highest level of car loans — $584 billion in new auto loans and leases appearing on credit reports
It’s not only car loans that have Americans in debt. The total household debt increased by $32 billion, in the fourth quarter of 2018, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data.
But auto loans have been increasing since 2011, by $9 billion, in fact.
It is all a bad sign got the U.S. economy.
“Economists warn that this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills,” the Washington Post reported.
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A majority of borrowers behind in the auto loans are under age 30. And this might be because they are not only working to pay off their car loans but also student loans.
“A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is usually a sign of significant duress among low-income and working-class Americans,” the Washington Post reported.
“Your car loan is your No. 1 priority in terms of payment,” said Michael Taiano, a senior director at Fitch Ratings. “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.”
And with so many people with car loans in default, many cars are being repossessed. Technology and laws in many states have now made it easier and quicker to repossess a car. “Some cars are installed with devices that prevent the car from turning on if someone misses a payment and it has become easier to geo-locate a car to tow it away,” the Washington Post reported.