According to data released this week by the Federal Reserve Bank of New York a record 107 million Americans have auto loan debt. That accounts for approximately 43% of the adult population in the U.S.
Auto loans have been increasing rapidly. In early 2012, only 80 million Americans had car loans. But now more Americans have auto loans than home loans- and according to recent numbers, many are having trouble affording their monthly payments. There are currently 6 million people who are 90 days or more behind on their car payments.
After the financial crisis, so-called “sub-prime” auto loans were routinely given to borrowers with less than perfect credit. Low quality loans spiked to pre-crisis levels in 2015 and 2016, according to federal data.
Many of the consumers qualifying for these loans do not understand the terms and conditions. The interest rates can be astronomical- sometimes as high as 20% and penalties for default can be severe.
Santander Consumer USA Holdings Inc., which is counted among the biggest subprime auto-loan firms, verified income on just 8% of borrowers. Limited verification of loan applicants’ stated incomes and employment “creates more uncertainty around whether borrowers will be able to afford their monthly payments, which becomes particularly important if they have poor credit records and risky loan terms,” the analysts wrote.
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