How Common Are Car Loans?
Car loans are one of the most common types of loans that Americans utilize. With the average new car costing over $36,000, few people can afford to pay cash for a new vehicle.
Car loans make it easy for people to afford monthly payments on a vehicle. Some people never consider the future financial consequences of taking out a massive car loan. In the past few months, delinquencies on car loans have increased dramatically. Some economists worry that this is a sign the economy is starting to decline. Before the last recession, car loan delinquencies also increased considerably.
According to PR Newswire, as interest rates rise, anyone who has a loan with a variable interest rate will pay more money each month. Some people do not even realize their loan payments could increase.
When agreeing to a car loan, a lot of people decide on a loan with no interest. However, anytime the borrower misses a payment, the loan company starts charging interest and fees. Some people get into a deep financial hole after missing a single installment.
Some people wrongly assume that buying a new car is a wise financial investment. In the first few years of owning a vehicle, it will depreciate rapidly. The car industry has struggled to increase sales over the past few years. Vehicles now last longer than ever before. Car companies have to entice customers to purchase new vehicles with special financing offers. These financing deals are one of the biggest reasons that so many people have car loans.
With higher interest rates, car companies will no longer be able to offer loans without interest to customers. Some economists think that higher interest rates will deter more people from borrowing money. Others believe that people are more comfortable borrowing money now that the economy is growing again.