Americans drowning in auto loan debt: Is there a way out?

Auto loans have become an essential part of car ownership for many Americans, with over 107 million auto loans in existence in the United States in 2021, according to credit reporting agency Experian. While auto loans have made car ownership more accessible, they have also left millions of Americans struggling with debt.

As of the first quarter of 2022, the average auto loan balance for a new car was $36,553, an increase of 6.5% from the previous year. Unfortunately, this increase in auto loan balances has been coupled with a rise in auto loan defaults, leaving many Americans in deep financial trouble.

Auto loan defaults are a major problem in the United States. In the fourth quarter of 2021, 1.32% of all auto loans were 90 or more days delinquent, according to the Federal Reserve Bank of New York. That may seem like a small number, but it represents millions of people who are behind on their car payments.

Defaulting on an auto loan can have serious consequences, including repossession of the vehicle, damage to your credit score, and even legal action taken against you by the lender. For those who are already struggling to make ends meet, the added stress of dealing with auto loan debt can be overwhelming.

One reason for the rise in auto loan defaults is the increasing length of auto loans. In recent years, lenders have been offering longer loan terms, some as long as 84 months, to make monthly payments more affordable. While longer loan terms may make payments more manageable, they also mean borrowers are paying more in interest over the life of the loan.

Another contributing factor to the rise in auto loan defaults is the high cost of new cars. With the average new car costing over $40,000, many Americans are taking out larger loans than they can realistically afford. Additionally, the cost of car ownership, including maintenance and insurance, can add up quickly, leaving many Americans struggling to make their monthly car payments.

So, what can be done to help those drowning in auto loan debt? One solution is to refinance your auto loan. Refinancing allows you to take out a new loan with better terms, such as a lower interest rate or shorter loan term. This can help you save money on interest over the life of the loan and make monthly payments more manageable.

Another option is to trade in your current car for a more affordable option. While this may not be feasible for everyone, trading in your car for a used or less expensive model can lower your monthly car payment and help you get back on track with your finances.

Finally, it’s important to seek help if you are struggling with auto loan debt. Many lenders offer hardship programs for borrowers who are behind on their payments. Additionally, there are non-profit organizations and financial counselors who can help you develop a plan to manage your debt and get back on track financially.

Auto loan debt is a serious problem in the United States, but it’s not one without solutions. By taking action to refinance your loan, trade in your car, or seek help from a financial counselor, you can take steps to regain control of your finances and move forward with confidence.