Americans with new car loans are paying about 25% more for their vehicles each month compared to a decade ago, according to a new Consumer Reports survey, with US car loan debt now exceeding $ 1. $ 4 billion.
Consumer Reports used data from nearly 858,000 auto loans from 17 major lenders that were bundled into bonds and sold to investors. The data includes details such as loan date, income level,
credit score, monthly payment, and employment status. The data analyzed for the survey did not specify the racial identity of the borrowers. The majority of loans have been arranged through a dealership, the main vehicle Americans use to finance their cars.
Almost 21,000 borrowers with
credit scores of 660 or higher – which are considered good credit scores – had annual percentage rates (APRs) ranging from 10% to 25%. About 3% of all prime and super prime borrowers were in this range, according to CR data examined. Recently, the average APR for new car borrowers with excellent credit scores has been 2.5% to 3.5%.
The difference in APR rates could mean thousands of dollars to consumers. The survey noted the experiences of two people in California who received approximately $ 18,000 in loan for a 2017 Chevrolet Trax. Both had good credit scores and similar income levels, but one had an APR of. 4.9%, amounting to $ 20,448 in payment, while the other had an APR of 14.1%, equivalent to a payment of up to $ 27,540.
âUnfortunately, it’s all too common,â Ian Ayres, lawyer and economist at Yale Law School, told Consumer Reports. “I have seen a surprising number of consumers with excellent credit who are enrolled in subprime loans.”
The data does not show any major factors that lead to the interest rate disparity, according to the survey, although experts suggest that dealers and lenders sometimes grant loans with interest rates they think they can afford. ‘draw. Government oversight of auto loans is limited. In many states, the laws regarding how interest rates can be set are unclear, and some have no limits.
In most places in the United States, the most convenient way to get around is by car, so people are willing to use more of their income to finance their vehicles. Almost 25% of the loans analyzed in the survey represented more than 10% of a borrower’s monthly income, despite expert recommendations against this. Almost 50% of people with
bad credit scores still exceeded this amount.
In loans analyzed by Consumer Reports, lenders checked their borrowers’ income only 4% of the time, leaving consumers at risk of receiving larger loans than they could afford.
Lana Ash, a resident of Oklahoma, alleges that the dealer she arranged her loan with falsely stated that she was making $ 5,500 per month on her loan application, which ultimately led to a higher monthly loan than the one she had initially accepted. When she could not repay the loan, the lender repossessed her car.
âI think they should take steps to make sure the person can afford the payments,â Ash told Consumer Reports, who filed a lawsuit against the lender and the dealer. The case is pending.
Industry groups and regulators are bracing for a potential increase in defaults in the coming months as pandemic assistance and loan repayment breaks end. A CR analysis of data from the Federal Reserve Banks of New York and Philadelphia found that while many pay off their auto loans without a problem, one in 12 people with a loan were more than 90 days overdue in spring 2021.
In response to the analysis, industry groups and lenders told Consumer Report that instances of high credit borrowers being charged high credit rates are anomalies.
“Consumers understand that rates vary from creditor to creditor,” Ed McFadden, spokesperson for the American Financial Services Association, told Consumer Reports. âThey have ample opportunity to research and shop.â
The data analyzed by Consumer Reports was from data disclosed to the United States Securities and Exchange Commission in 2019 and 2020 and is not nationally representative.