According to a recent report in Barron’s, a record number of auto loans in the United States have surpassed the $1,000 a month mark. Approximately 17.5% of all new auto loans in the third quarter of 2023 now fall into this category. This means that nearly one in five consumers is paying more than $1,000 a month for their vehicle, a high cost that represents a significant portion of the country’s median household income.
Before the pandemic, only 4% of car payments in the United States were over $1,000. This dramatic increase of nearly 350% in just over four years highlights the rapid growth in consumer spending on automobiles. The trend is not limited to the United States, as Canada has also seen a sharp increase in the number of people paying $1,000 or more a month for their cars.
Interestingly, the average new car loan in Canada has reached an impressive $880 a month, up from $813 last year and $650 in 2019. This represents one-sixth of the average Canadian family income and puts an even greater burden on for single-parent households.
While rising interest rates and supply chain issues have contributed to rising auto prices and financing costs, there is more to this trend than meets the eye. Consumers have not reduced their spending habits, despite the economic uncertainties caused by the pandemic. Trucks and electric vehicles are particularly popular, driving up transaction prices and leading people to extend their loan terms.
In Canada, more than 50% of recent auto loans have payment periods longer than 84 months. This shift toward longer loan terms has resulted in fewer affordable monthly payment options, with less than 5% of new auto loans under $400 a month.
The demise of the sedan market is also noteworthy. With SUVs and pickup trucks dominating sales, sedans, especially subcompacts, have all but disappeared from the market. This shift toward larger, more luxurious vehicles has contributed to rising auto loan costs.
Overall, the rising cost of auto loans is a worrying trend. Not only does it affect people’s financial well-being, but it also raises questions about the sustainability of such high levels of consumer debt in the long term.
Fuentes:
– Barron’s
– Edmunds Study
– United States Census Bureau
– J.D. Power
2023-10-13 11:37:24
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