Americans Carrying Record Amounts of Car Debt

Data shows jump in borrowing by financially stressed groups

According to Experian Automotive, outstanding auto loan balances in the United States soared to a record $987 billion in the fourth quarter of 2015, with average monthly payments rising to $493 from $482.

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In addition, our reliance on financing is growing—nearly 90% for all new vehicles and more than 54% for used cars sold in the fourth quarter were financed.

Still, lenders are trying to extend their borrowing pool by attracting people with lower credit scores, rekindling not so distant memories of the easy lending standards that got borrowers into trouble during the housing crisis. Recent data from the Federal Reserve Bank of New York shows that auto loans to people with credit scores below 620 have increased more than 150% over the last six years.

The Experian research found that 20% of all auto loans went to borrowers with sub-prime and deep sub-prime credit scores.

“Although not yet a cause for concern,” says Melinda Zabritski of Experian Automotive, “the industry should keep an eye on this metric to see how it trends in the quarters to come.”

“While loan balances continue to rise and funding may be more easily attainable, it is critically important for consumers to stay on top of their monthly payments to keep the automotive market running on all cylinders,” she says.

Analysts at WalletHub.com recommend prospective car buyers get their free credit score and leverage a Car Payment Calculator to determine what they can afford and how long it would take to pay off their future auto loan.

As for whose doing the lending, Experian says balances at finance companies jumped 23% in the fourth quarter of 2016 from 2015, while lending by credit unions rose 16%. Banks, which still hold the largest share of auto loans saw balance growth of 7.6%.