GenFKD: Will Record Auto Loan Debt Crash the Economy?

by David Grasso, GenFKD

While many millennials are opting out of car culture, our record auto loan debt demonstrates that America’s love affair with the automobile is far from over. The vast majority of us still live in places where not having a car amounts to an enormous inconvenience, if not an impossibility.

We need cars to move around our metro areas, and more often than not, we buy these machines with borrowed money. After several years of a car-loan-borrowing binge in America, default rates are starting to creep up, especially for subprime borrowers.

What’s subprime? It’s not good

When borrowers with bad credit go take out a car loan, they are charged significantly more than consumers with good credit. This is because interest rates on subprime auto loans are often north of 20 or even 30 percent — rates that many would consider abusive to the average consumer. The subprime auto loan industry is extremely lucrative, because lenders can make enormous returns on their money, while facing little downside. After all, if someone doesn’t pay their auto loan, they can easily go repossess the car and turn around to sell it again.

The amount of people who have subprime auto loans is higher than you might expect. Consider almost a quarter of auto loans fall into the “deep subprime category” (consumers with credit scores less than 500). Lately, default rates have been creeping up, making some worry that there’s a bubble in auto loans that goes far beyond the subprime category.

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About Editor 552 Articles
With a background in politics and the law, comedian and best selling author Tim Young brings an edgy conservative take on the day’s news and everyday life to venues and readers across the country. His singular view of contemporary America has been featured by stalwarts of the conservative movement like CPAC and Fox News, yet finds itself equally at home challenging thought leaders from the left at the National Press Club and The Huffington Post. Tim has performed in theaters, comedy clubs, and at colleges nationwide with everyone from political insiders and media talking heads to the man-on-the-street subject to the quick wit and snarky attitude that feeds his appearances on dozens of talk radio shows including Fox News Red Eye, HuffPo Live, CNN, and Russia Today. Tim also runs his mouth everyday to a growing fan base of tens of thousands on Twitter who don’t seem to care that he’s from Baltimore.