Driving Into Debt: Americans Owe $1.2 Trillion on Auto Loans

More Vehicle Buyers Taking On High-Interest, "High-Risk" Loan Debt

What to Know

  • Consumer advocate CALPIRG finds Americans owe $1.2 trillion on auto loans, the highest amount ever recorded
  • CALPIRG says auto debt is up 75% since 2009
  • The U.S. Federal Reserve Board says there are more subprime borrowers than ever, and many face delinquency for missed payments

Car prices are up. Kelley Blue Book pegged the average price for a new vehicle last month at $37,285. At the same time, auto loan debt is at its highest level ever, and that's alarming to consumer advocates like Emily Rusch.

"Americans now owe $1.2 trillion on their car loans," she said.

Rusch is executive director of the California Public Interest Research Group, or CALPIRG, based in Oakland. Her office recently published a U.S. PIRG report highlighting the problem of rising auto loan debt.

"Some of the loans that are being given out are given out to people who probably can't afford to take out that loan," Rusch said. "[They] will not be able to repay that loan over time."

The U.S. Federal Reserve Board says the number of families missing car payments is rising, and "...there are now more subprime auto loan borrowers than ever, and thus a larger group of borrowers at high risk of delinquency."

A borrower is considered "subprime" if their credit score is lower than 620. CALPIRG sees trouble in car loans being stretched longer than ever, making payments easier to handle for people with poor credit. While it used to take three or four years to pay off a car for most buyers, subprime loans can drag payments out for six or even seven years.

"Consumers need protection to make sure they're not driven into interest rates they can't afford," Rusch said.

The National Automobile Dealers Association says the PIRG report's conclusions are "misleading," adding: "The fact is that dealer-assisted financing is tremendously beneficial to consumers, and more often than not saves them money on auto financing."

NBC Bay Area asked the American Bankers Association for its take. We did not receive a response, but we found a May 2019 post on its website pointing a finger at dealer financing: "The prominent danger spot in the auto lending market has been and continues to be subprime borrowers at auto finance companies."

CALPIRG advises all prospective car buyers to consider getting pre-approved for a loan before car shopping: set an amount you can afford, then stick to that number. Only sign and drive when you're sure the new ride fits your budget.

"You will likely get a better interest rate, and it gives you a sense of what you're eligible for," Rusch said.