Auto debt piles up as more Americans struggle to pay bills

A growing number of Americans are behind on car payments, which is an ominous sign for US economy because high car prices and persistent inflation place a heavy burden on household budgets.

Car confiscations plummeted in the early days of the pandemic when the government sent $5 trillion in stimulus money to American homes and businesses. But they gradually grew, as their prices were exorbitant. used and new cars forced consumers to take out larger loans.

According to the latest data, in January, the percentage of auto borrowers who are at least 60 days late on their accounts increased by 2% compared to December and by 20.4% compared to last year. data from Cox Automotive. The percentage of serious offenses rose to its highest level since 2006.

While the high level of serious delinquency has not led to an equivalent rise in defaults, they are also on the rise: loan defaults increased by 6.2% during January and rose by 33.5% year-over-year.

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Unsurprisingly, the number of seized vehicles is also on the rise: the number of seized vehicles increased by 11% in 2022 compared to the previous year, although they still remain below pre-pandemic levels, according to the data. estimates Cox Automotive company.

“With new car prices so high, it’s becoming increasingly difficult for most Americans to endure these payments,” Ivan Drury, director of information analysis at Edmunds, told FOX Business. “It just becomes something where, although it’s available to you today, will it hold in the future? That’s where we see the foreclosure taking place.”

Used and new car prices rose last year as a result of semiconductor shortages and other reasons. Disruptions caused by COVID-19 in the global supply chain. Although fewer cars were produced, consumer demand remained strong, pushing up prices.

Prices began to decline towards the end of 2022, but average cost a new car is still about $50,000—a record. Rapidly rising interest rates exacerbated the pain of higher car prices.

The average rate on new auto loans jumped to 6.9% in January from 4.3% a year ago, according to Edmunds, an online resource for automotive inventory and information. This, combined with higher stick prices, has caused new car availability to drop to its lowest level in 2022.

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For many Americans, rising interest rates and high car prices have resulted in their monthly payments exceeding $1,000.

“It gets to the point where interest rates are definitely holding back buying behavior,” Drury said.

In fact, according to data from Edmunds, the percentage of consumers paying at least $1,000 a month for their cars has risen to an all-time high in the last three months of 2022. About 16% of consumers who financed a new car purchase in the fourth quarter have the same high payments, up from 10.5% a year ago.

It also raises the threat of future problems in the auto industry if more consumers continue to default on their loans.

“What we’re seeing here is actually that inflation is a problem,” Drury said. “You can only work so many jobs. People are working. Do they work part-time, are they underpaid? , 10 years ago.”

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