The Car Debt Situation is Getting Worse

If you haven’t been following the vehicle finance situation in this country, and most people don’t, we’re headed towards something really not good. I’m not saying it will be like 2008 with the housing crisis, but it still won’t be pretty.

Subprime auto loans are the ticking time bomb. Bloomberg ran an interesting article last week about the situation. Basically, people are just digging themselves into more and more debt to buy the next new car. What could possibly go wrong?

In fact, the report says almost a third of all vehicles traded in at dealerships in the US are worth less on paper than the loans used to finance them. People are upside down in their cars, something we’ve known for a while. But the number of car owners who are in this position has grown.

How do people end upside down in a vehicle loan? They start off with crappy credit, then don’t want to put anything down when buying a new car. Maybe they’re convinced they can’t afford to put money down, maybe they can’t, it really doesn’t matter. They get a longer loan term, like 84 months. They also get a car nobody wants, like a Dodge Journey, it plummets in value, meanwhile they’re paying a ridiculous interest rate that means hardly any of the principle on the loan is being chipped away. Finally, as the car is falling apart and they don’t have money to really fix the thing, they trade it in on something newer but equally as bad. Rinse and repeat.

So yeah, this isn’t going to end well for the industry, unless someone dos something. Problem is, nobody wants to do the right thing.