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Are Car Loans The Next Economic Bubble?


It is easy for people who live in walkable neighborhoods where the real estate prices are astronomical to look down their noses at the 99 percent who spend money they don’t have on cars, but for most people, cars are not merely a status symbol.  People depend on their cars for their commute to work and for errands.  In many places in Pennsylvania, commuting by bus would take hours out of your day.  Despite this, many working adults cannot afford to buy a car, not even a used one, without financing it.  With car prices getting more expensive, lenders are stretching out car loan repayment terms over a longer time, which means that borrowers pay more money in interest throughout the duration of the loan.  Lawrence Hodge of Jalopnik warns that car financing is quickly becoming unaffordable.  He even predicts that the current situation is so untenable that the car loan bubble will likely burst in the near future.  If unaffordable car loan payments are a major contributing factor to your financial woes, contact a Philadelphia debt collection abuse lawyer.

If You Are Underwater on Your Car Loan, Don’t Trade in Your Car for a More Expensive One

According to Hodge’s recent post on Jalopnik, the average monthly car loan payment nationwide is nearly $800, which is the highest it has been since before the pandemic.  Even worse, more vehicle owners owe more than $1,000 per month on their car payments than have owed this much at any time in the past ten years.

This is not the most disturbing part.  The fact that everything is ridiculously expensive these days is not news.  Many car owners are underwater on their car loans, meaning that the amount they owe on the loan exceeds the vehicle’s trade in value.  The disturbing part is how easy it is to trade in a car in which you own negative equity and take on more debt in return.

In the last quarter of 2022, the average vehicle trade-in involved trade-ins that left the owner owing $5,500.  Car dealerships and lenders want to make money, so naturally they will accept these trade-ins and let you add the amount you owe on your old car to the loan balance for your new car.  An extreme example is the family that traded in two cars with negative equity so they could buy a Ford Explorer.  When you add in the $11,000 in residual debt from the trade-ins, they are now paying $60,000 for a $49,000 Ford Explorer, and that does not even count the interest they will pay over the term of the loan.  Situations like this are unfortunately becoming more common.

Contact Louis S. Schwartz About Car Loan Debts

A Philadelphia consumer law attorney can help you if you are underwater on your car loan and are worried that taking on more debt is the only way to deal with your current debts.  Contact Louis S. Schwartz at CONSUMERLAWPA.com to set up a free, confidential consultation.



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