Borrowers Remain Current Despite Rising Auto Loan Debt

Low interest rates and income gains keep car loans current

Borrowers Remain Current Despite Rising Auto Loan Debt
March 11, 2016

While the total amount of all outstanding auto loans has hit $1.1 trillion as of the end of 2015, 30 percent more than it reached prior to the 2008 financial crisis, many experts are saying that there isn’t as much to fear as it initially seemed.

That’s because in order to get a clearer picture of the market, the borrower’s amount of disposable income must be taken into account. According to Andrew Hunter, author of a report issued by the Federal Reserve Bank of New York, the total amount of vehicle loan debt is actually “fairly meaningless.”

A report by the US Department of Labor shows that the workforce in America continues to grow while unemployment holds steady at 4.9 percent; a record low for the past eight years. While hourly pay rates haven’t increased by a large amount, the fact that more people are employed has certainly helped keep auto loans current.

Another major factor is the low interest rate many borrowers are getting on their auto loans. In the last quarter of 2015, new car loans made for 48 months were often approved with 4 percent interest, almost half of the rate that was common in Q4 of 2006. While rates will most likely rise again, for now these low figures coupled with the growing economy make it unlikely that the auto loan industry will experience any major loss in the immediate future.

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