With a record 16% of American consumers paying at least $1,000 a month for their cars, it’s no surprise that drivers are starting to fall behind on their bills.
The percentage of borrowers at least 60 days late on their car payments is higher today than it was during the peak of the Great Recession in 2009.
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There are multiple factors driving this trend. Car financing costs are climbing as the Federal Reserve continues its aggressive campaign of interest rate hikes to combat persistent inflation.
At the same time, used car values are dropping, leaving debtors at risk of owing more money than their cars are actually worth.
As your monthly car costs increase, you can dodge a debt default by avoiding two common auto loan mistakes.
Used car prices surged during the pandemic due to supply chain challenges, which forced buyers to take out bigger loans — with higher APRs — for their vehicles.
Despite the fact that car prices started to cool off by the end of 2022, a concerning trend of auto loan defaults and car repossessions has started to surface.
According to the latest data, vehicle loans are third largest debt category for U.S. consumers with Americans owing $1.52 trillion in auto loan debt.
The percentage of subprime auto borrowers who were at least 60 days late on their bills hit 5.67% in December, trumping 5.04% in January 2009 at the peak of the Great Recession, according to the credit rating agency Fitch Ratings.
Ally Financial (NYSE:ALLY), one of the largest providers of car financing in the U.S., said its percentage of car loans that were more than 60 days overdue rose to 0.89% in Q4 2022, up from 0.48% a year earlier.
And the problem extends beyond auto loans. Major banks and lenders are experiencing similar issues with credit card debt and mortgages, especially when it comes to millennial and Gen Z borrowers.
As a result, several key players — including Capital One Financial Corp (NYSE:COF). and American Express Co. (NYSE:AXP) — have tightened their lending standards and boosted their rainy day funds to cover potential loan losses.
Vehicle repossessions are also reportedly on the rise after a sharp drop at the start of the pandemic when Americans were boosted by stimulus checks and lenders were more willing to turn a blind eye to late payments.
“These repossessions are occurring on people who could afford that $500 or $600 a month payment two years ago, but now everything else in their life is more expensive,” said Ivan Drury, director of insights at Edmunds, in the January report from Edmunds.
If you’re in the market for a car and you need to get an auto loan, you can save money by avoiding these two common mistakes.
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If you owe more on your auto loan than your vehicle is worth — known as being “upside down” — then you have negative equity.
For example, if you have $15,000 left to pay on your auto loan and your car is now worth $10,000, that means you have negative equity of $5,000 that you still have to pay.
According to Edmunds, the average amount owed on upside-down loans in Q4 2022 was $5,341 compared to $4,141 in Q4 2021.
Dealing with negative equity will require some planning and will likely take a larger chunk out of your monthly budget. If you can’t pay off your old auto loan out of pocket, you’ll have to roll the negative equity over to your new loan. This increases your risk of defaulting as you’ll be dealing with the higher monthly cost of paying for two cars at once.
“As we shifted toward an environment with diminished used car values and rising interest rates over the past few months, consumers have become less insulated from those riskier loan decisions,” Drury added.
“We are only seeing the tip of the negative equity iceberg.”
According to the car buying website Edmunds, the average annual percentage rate (APR) on new financed vehicles climbed to 6.5% in the fourth quarter (Q4) of 2022 compared to 5.7% in Q3 2022 and 4.1% in Q4 2021.
For loans on used cars, interest rates were even higher, hitting an average APR of 10% in Q4 2022 compared to 7.4% in Q4 2021.
The longer the loan term, the lower the monthly payments but the more interest you will end up paying.
As the costs of new and used cars have skyrocketed, more Americans are seeking loan terms above 60 months.
In fact, the average auto loan now sits at around 70 months, or closer to six years, according to Edmunds, which means people are financing their cars for longer even if it costs more down the line.
Aside from paying more interest on your loan, there are other setbacks to extending the term.
The older your car, the more likely you’ll have to spend money on repairs and maintenance in addition to your monthly loan payments.
You could also grow sick of your car during a long loan term, leaving you stuck with years of payments you’re loath to make or with negative equity that you’ll have to carry over if you want to buy another car.
When you’re shopping around for the best deal on a new car, spare a few minutes to find a better deal on auto insurance, too.
On average, Americans pay $1,553 a year on auto insurance. But if you haven’t cruised through your options lately, you could be overpaying by as much as $500 a year on this essential policy.
Your best chance to find savings on your auto insurance is to spend some time shopping around and comparing offers.
Typically, that might mean setting aside hours — or even a whole day — to call up different insurers just to provide them with your details to get an accurate quote.
But with today’s comparison sites, in as little as three minutes, you can find the best deals on auto insurance all in one place.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
At this stage, it will be prudent to stay with safe stocks.Five such stocks are: CAH, CINF, CLX, KO and GIS.
SVB Financial Group bought some of the safest assets in the world of finance. SVB Financial is the parent company of Silicon Valley Bank, which counts many startups and venture-capital firms as clients. SVB ended the first quarter of 2020 with just over $60 billion in total deposits.
SVB Financial faced a perfect storm, but there were plenty of other banks with high levels of unrealized securities losses as of Dec. 31.
Last week ended with the worst day for bank stocks since the financial crisis of 2008. The collapse of Silicon Valley Bank, the country’s 16th largest banking firm and the lender of first resort for the start-ups of California’s tech world, has sparked fears of a larger bank run, or even a repeat of the systemic financial troubles. That’s the worst-case worries – but according to Goldman Sachs’ chief credit strategist, Lotfi Karoui, these fears may be overblown. “We think the risk of contagion f
(Bloomberg) — It was a seemingly unthinkable scene: Barney Frank, co-author of the Dodd-Frank Act, the radical overhaul of the banking system after the 2008 global financial crisis, was having his very own Dick Fuld moment.Most Read from BloombergBonds Soar, Tech Up as Bets on Fed Pause Weighed: Markets WrapFed’s New Backstop Shields Banks From $300 Billion of LossesFDIC Auction for Failed SVB Underway, Final Bids Due SundaySignature Seized by Regulators as Pain Spreads From SVB’s FallUS Discus
Let the wagers begin.
Looks like the financial stock market freakout is taking down more than just regional banks. Charles Schwab is feeling the heat too.
As fear ripples through the banking industry, Charles Schwab was swept into the mess last week and continued to sink Monday. The stock is now down around 30% for the past few days and around 35% for the year, over concerns of mark-to-market losses on its held-to-maturity bond portfolio. Schwab has faced a steady flight of cash from accounts in search of higher returns in money markets and other instruments, which it calls cash sorting.
I sold half of my bank positions last week before news of the SVB collapse. This is my plan for them now.
You won’t even owe him a penny for his thoughts.
Charles Schwab's stock fell as much as 23% on Monday, its biggest daily decline on record despite assurances the financial services company has enough liquidity.
Amazon.Com, Inc (NASDAQ: AMZN) and Rivian Automotive, Inc (NASDAQ: RIVN) are in discussions to eliminate the exclusivity part of their electric-van deal. Rivian could start selling to others after Amazon's order for 2023, the Wall Street Journal reports. Rivian needs to sell all of the vans it makes to Amazon under a 2019 deal. Recently, Amazon ordered about 10,000 vans this year, at the low end of the range it previously provided the automaker. In response, Rivian sought to terminate the exclus
First Republic Bank stock down 73% amid fears of regional bank contagion
Silvergate, Silicon Valley Bank and Signature Bank collapsed in the same week. All eyes are now on First Republic Bank.
(Bloomberg) — Charles Schwab Corp. rebounded from a record intraday decline after the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following the collapse of Silicon Valley Bank.Most Read from BloombergBonds Soar, Tech Up as Bets on Fed Pause Weighed: Markets WrapFed’s New Backstop Shields Banks From $300 Billion of LossesFDIC Auction for Failed SVB Underway, Final Bids Due SundaySignature Seized by Regulators as Pain Spreads From SVB’s
Former NFL wide receiver Terrell Owens played 15 seasons, earning an estimated $80 million dollars from salary and endorsements, according to CelebrityNetWorth.com. Owens added: “I think those are some of the most idiotic purchases I think players can do, especially when they don’t have that money in the bank account to really pay for that stuff.”
Las Vegas Sands, nCino, Informatica Inc. & Palantir Technologies are part of the Zacks Screen of the Week article.
Rivian and Amazon are in talks to end the exclusivity part of the all-electric van deal the two companies signed in 2019. RIVN stock fell.
(Bloomberg) — Morgan Stanley’s Michael Wilson, known for being one of Wall Street’s most bearish strategists, recommended that investors sell any rebound in US stocks that may result from regulators’ support measures after the collapse of Silicon Valley Bank.Most Read from BloombergBonds Soar, Tech Up as Bets on Fed Pause Weighed: Markets WrapFed’s New Backstop Shields Banks From $300 Billion of LossesFDIC Auction for Failed SVB Underway, Final Bids Due SundaySignature Seized by Regulators as P
The Dow Jones fell Monday, as the FDIC guaranteed all deposits of SVB Financial. First Republic crashed 75% on ongoing bank fears.