The United States of America remains one of the largest car markets in the world. With over 17.5 million new cars sold in 2016 (compared to 1.95 million in Canada in the same period), barely more than were delivered in 2015, you could possibly guess that the car debt is big. Oh, and then there are used vehicles sales. For fun, know that nearly 80 million used cars were sold in the US between 2015 and 2016.
Before I divulge the number, consider that there are only 15 economies (markets or countries) in the world that have a GDP (Gross Domestic Product) that is above $1 trillion. Ready for the amount now? Americans owe $1.1 trillion in auto loans. We don’t have the equivalent Canadian figures however the 1/10 rule of thumb is likely not far off the mark.
How is this possible, you ask? Simple. We love to consume and carmakers know this all too well. In order to accommodate our insatiable wants and needs, they’ve devised payment plans that span an eternity, or at least it seems that way when buyers lock in for six or more years. This keeps payments low which always fits better in a budget.
More specifically, the average new car loan period was of 68.8 months, or just shy of six years. By contrast, the average used car loan reaches 63.98 months. With financing periods reaching up to 96 months (8 years!!), a consumption slow-down is unlikely. That is, until someone decides to put a cap on the madness.
There are many traps in this type of long-term borrowing, one of which is owing far more than what the car is worth after a short period of time. This is known as negative equity.