A few weeks ago on the blog we discussed how consumer debt is continuing to grow. One of the major driving forces behind this debt is auto loans. The average cost of a new car today hovers around $37,000, which is more or just slightly less than many Texans make per year. This means that financing is usually required for both new and used vehicle purchases, which has driven up automotive loans by 75% since 2009. In total, Americans owe about $1.2 trillion in auto loan debt.
These figures have some financial experts worried. Particularly worrisome is the fact that, since lending has loosened up, many of these auto loans are considered subprime. This means that loans were given to individuals with credit scores below 620. These buyers are less likely to be able to afford their loans, which increased the chances of loan default. If a lot of these purchasers end up defaulting on their loans, lending standards could tighten again, thereby shutting some people out of the market and increasing costs for others.
Whereas auto buyers used to be able to pay off their auto loans in a matter of years, typically up to four, today's purchasers often stretch their loans out over longer periods of time. Sometimes these loans can last for as long as eight years. While this may make monthly payments more affordable, it can lead to more long-term financial insecurity. For far too many Texans, this means that they will have to go several years on the brink of financial disaster as they continue to live paycheck-to-paycheck.
Many Texans fight with everything they have to try to stay afloat when financial hardship strikes them. These efforts are certainly admirable, but far too often they don't provide the overarching debt relief they need and deserve. This is why those who are struggling with personal debt, which often includes auto loan debt, should think about meeting with an attorney to discuss their options. This may include a Chapter 7 bankruptcy filing, which, depending on one's circumstances, can eliminate many debts and provide a fresh financial start.