Some types of debt seem inescapable. Tens of millions of American are saddled with mortgages, student loans, credit card debt or a combination of the three. But there\u2019s another place where Americans also carry huge outstanding liabilities: in their garages. Cars are rivaling everything else in terms of debt bondage for everyday Americans.<\/p>\n
Roughly one in four Americans are paying off auto debt, according to a report<\/a> published Wednesday by the Century Foundation, a progressive think tank, and are overall on the hook for a record $1.68 trillion in car loans or outstanding payments. Those figures out auto loans on par with all outstanding federal student loan debt<\/a> <\/a>($1.69 trillion of federal debt and $1.84 trillion total) and ahead of credit card balances ($1.28 trillion<\/a> outstanding as of last year).\u00a0<\/p>\n It\u2019s the end result of years of rising prices for cars, an item that has fast outpaced inflation since the pandemic. In a country as car-reliant as the U.S., expensive cars and auto debt have quickly spiraled into one of the largest monthly obligations in household budgets. The average monthly payment on a car is now around $680, according to the report, up almost 40% from 2018, when drivers could expect to pay $506. Some projections have calculated even bigger monthly payments, as much as $760 on average<\/a>, according to one January estimate from J.D. Power, an industry research firm.<\/p>\n The numbers are especially painful for lower-income households who have to spread payments out over longer periods, significantly raising the total cost of a loan. For the average borrower paying off a car loan longer than seven years, their payments add up to nearly 20% of their average monthly income for the lifetime of their loan.<\/p>\n \u201cHistorically high auto costs and interest rates are pushing record numbers of borrowers into longer term loans that raise the total costs of owning a car and keep households in debt,\u201d the report\u2019s authors wrote. \u201cParadoxically it is low-income borrowers, with the least disposable income, that carry the most auto loan debt.\u201d<\/p>\n An expensive necessity<\/p>\n The scale of the country\u2019s auto debt burden underscores how much the car market has changed since the COVID-19 pandemic. Car prices started ticking up around 2021, as shortages of computer chips and other manufacturing components squeezed the available inventory<\/a> of new cars. But prices never really stopped rising. These days, new vehicles sell for an average of almost $50,000, a 30% increase<\/a> since 2019.\u00a0<\/p>\n While supply chain issues have faded, drivers have been faced with other headwinds. Manufacturing costs are higher in part because of many new high-tech features cars come with, such as assisted steering and rear view cameras, some of which are now required by federal law. Many automakers have also prioritized the middle-market or luxury options, moving away from providing affordable models<\/a>, some of which were the first to be discontinued during the pandemic.<\/p>\n The new car market in the U.S. has increasingly become another reflection of the country\u2019s K-shaped economy, as lower income earners occupy a shrinking share of carmakers\u2019 customer base. Last year, just 37% of people in the market for a new car had salaries smaller than six figures, down from 50% in 2020, according to data<\/a> published earlier this year from Cox Automotive, a technology provider. Meanwhile, high-earners are rapidly catching up, with the share of buyers with incomes exceeding $200,000 rising from 18% to 29% over the past six years.<\/p>\n Expensive new buys would usually push more shoppers into the used car market, but with so many people consistently priced out of new vehicles over the past five years, second-hand purchases have hardly been a bargain. While used car inflation has moderated somewhat since its peak in 2022, prices are still 29% higher<\/a> than before the pandemic.<\/p>\n The eye-watering prices have pushed more and more drivers into taking out long-term loans to finance their car purchases, adding to the country\u2019s crushing consumer debt burden. Subprime auto loan delinquencies are now more common than in 32 years, and a record number of borrowers are more than 60 days behind on payments, according to a February analysis<\/a> from CarEdge, a shopping platform, based on data<\/a> from Fitch, a ratings agency.\u00a0<\/p>\n Consumer delinquencies have risen<\/a> across the board over the past few years, but auto loans can be different. More than three quarters of Americans rely on their car to get to work<\/a>, with many more needing a vehicle to take their children to school, get groceries, or simply move around in places where public transportation is limited. Defaulting on a credit card payment can lead to fees and a credit score hit, but for many Americans, much more is at stake if the repo man comes for their car.<\/p>\n","protected":false},"excerpt":{"rendered":"Some types of debt seem inescapable. 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