I always wonder how some people I see driving nice expensive cars can afford to drive those cars. Answer? They are living beyond their means. People are routinely buying cars that depreciate in value faster than they pay off the loans.
Gone are the days of the three-year car loan. The length of the average automobile loan hit five years, four months in October, up more than six months from 2002, according to the Federal Reserve. And nearly 45% of loans written today are for longer than six years. Even some staid lenders owned by the carmakers, such as Toyota Financial Services and Ford Credit, are offering seven-year financing. And a few credit unions, particularly in the West, are tinkering with the eight-year note.
At the same time, the amount of money drivers owe on their cars is soaring. In October, the average amount financed hit $30,738, up $3,500 in just a year and nearly 40% in the last decade, according to the Fed. More troubling, today's average car owner owes $4,221 more than the vehicle is worth at the time it's sold -- up from $3,529 in 2002, according to industry analyst Edmunds.
But Marty Jerome at the Wired blog says the numbers might overstate the size of the problem.
Not mentioned in the "Times" article is that the "average" amount owed on a car is hugely skewed by luxury makes (and utility trucks). A relatively small percentage of individuals and companies are assuming extravagant amounts of debt on auto loans for various reasons, including tax write-offs.
He doesn't provide any evidence for these assertions. Also, he still thinks the trend in auto loans is "unsettling".
My biggest problem with the debt nation is that people who live beyond their means their entire working lives will demand more from government (i.e. from people still working and paying more in taxes) in their retirement. Worse, the US government (and not a few other ones) has over promised on what it can hope to deliver to retirees. The currently retired are getting a great deal where they get far more in benefits than they paid in as taxes. Younger folks are going to get shafted on this and the economy will bog down with taxes to try to pay welfare benefits to baby boomer retirees.
|Share |||By Randall Parker at 2008 January 12 04:59 PM Economics Transportation|