There are more than 275 million cars on the road in the U.S.
But in recent years, car ownership has gotten more expensive than ever — due to the Covid-19 pandemic, supply chain issues, stubborn inflation and the Federal Reserve’s interest rate hikes.
“Outside of purchasing your first home, a new car … is the second-largest purchase for most people,” said Joanna Dean, vice president of sales at Toyota Financial Services Group. “Given the transaction prices and vehicle prices today, financing is required to buy these vehicles.”
More than 100 million Americans have a car loan, and auto loan debt in the U.S. currently stands at $1.5 trillion — a record high.
In 2023, the average monthly loan payment for a new vehicle is $725, up from $650 in 2022, according to Experian. The average monthly payment for a used vehicle is $516 in 2023, up 2% from the year prior.
“Outstanding balances continue to grow; consumers are still originating auto loans,” said Melinda Zabritski, Experian’s senior director of product management. “The volume is a little lower, but the loan amounts are certainly higher.”
Your credit score influences auto loan terms
There are both direct and indirect lenders, and you can take out an auto loan for a new or a used vehicle. While consumers have options, your particular interest rate and terms will depend on the lender you borrow from, as well as multiple factors on your end.
Lenders determine rates and terms based on their confidence in your ability to pay back the loan. They look at your assets, liabilities, income, expenses and credit score.
“Our primary goal is to put customers in financial products that they can afford,” said Chase Auto CEO Peter Muriungi. “Our No. 1 priority is our consumers, and so we have put a variety of processes in place to ensure that is the case.”
Chase Auto services consumers with a credit score of 620 and higher, with the average credit score typically in the 700 range, according to Muriungi.
Toyota Financial Services holds primarily a prime credit portfolio, meaning they service those with very high credit scores. The average is 744, according to Dean.
“But we do support a larger spread of business,” said Dean. “And those with maybe lower FICO [credit scores] may come to the table with larger down payments to help that affordability.”
Car purchase woes are leaving some buyers cold
Meanwhile, Americans don’t typically cast their car-buying experiences in a positive light.
“It was a very quick process, and I did feel like they just wanted me to sign at the bottom line as quickly as possible,” said Sean Miller, 32, who took out an auto loan for his car in 2019.
That decision — made years ago — is still costing the Brooklyn, New York, resident today.
“I’m paying a ton of money right now for a car that I don’t really need, and I’ve been struggling and struggling to sell it,” he said. “If I were to sell it today, it would probably be at a $10,000 to $15,000 loss.
“This is something that right now is preventing me from being able to save up in order to start a family,” Miller added.
In fact, American car buyers have filed numerous lawsuits and complaints nationwide against several different lenders, alleging discriminatory and illegal auto loan practices.
So what’s happening in the auto loan industry, and how can consumers protect themselves?
Watch the video above to learn more.
Image and article originally from www.cnbc.com. Read the original article here.