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More Americans are falling behind in repayment of vehicle loans

When a Massachusetts resident buys a new or used car, he or she will often take out a loan to finance the purchase. As car prices increase nationwide, Americans are borrowing more in order to get the make and model they want. According to a major credit bureau, the total owed on car loans nationwide was over a trillion dollars in the quarter ending June 30 - the second quarter in a row that total balances exceeded $1 trillion.

The amount of the average new car loan increased to $29,880 in the second quarter of this year - a 4.8 percent increase over the second quarter of 2015. The average monthly payment rose to $499, an increase from $483 last year. The number of longer-term loans is also rising; some loans now have as much as a seven-year repayment period.

As vehicle loan balances increase, delinquency rates are also rising. Ford Credit and GM Financial have set aside 34 and 14 percent more, respectively, for credit losses in the first half of 2016 than in the first half of last year. For subprime and deep subprime loans, the number of borrowers who are 60 days or more behind in payments increased by 17 percent over last year.

A car loan is a secured loan; if the borrower falls behind in payments the lender can repossess the car. Secured creditors generally have more rights in bankruptcy proceedings than unsecured creditors. But as soon as the borrower files personal bankruptcy, the automatic stay will stop repossession immediately. And as we discussed in another post earlier this year, a debtor then has options in both Chapter 7 and Chapter 13 bankruptcy that may allow them to keep the vehicle.

Source: Detroit Free Press, "Car buyers borrowing more than ever with loans topping $1 trillion," Greg Gardner, Sept. 6, 2016

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