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Money News

Beep, Beep! Don’t Lose Sleep Over Car Loans

October 09, 2019
aerial view of highway with cars

3 min read

U.S. consumers are reportedly paying more than ever for their cars, and they’re racking up record amounts of debt to make their purchases.

That’s according to a new report from the Wall Street Journal, which says the average car loan has climbed to $32,000, about a third higher than it was ten years ago,  while the average loan is held for 69 months, or nearly seven years.

Meanwhile, car dealerships have more incentives to offer loans, as dealers reportedly make more than twice as much money from financing a car than the sale itself, also a shift from a decade ago. Banks that originate the loans for a dealer typically offer a percentage of each new loan, according to reports.

On average, dealerships make nearly $1,000 on financing each new car,  compared to less than $400 for the sale. That’s a reversal from a decade ago, when dealers tended to make about $800 on average sales, and about $500 from financing, the WSJ says.

Consumer debt, including car, credit card, and student loans, has increased to about $14 trillion as of the second quarter of 2019. That also marked the  20th straight quarterly increase of consumer debt, according to the Federal Reserve Bank of New York.

Why are cars getting so expensive?

The car industry has changed in recent years, as consumers have opted for bigger and costlier SUVs, rather than smaller and relatively more affordable passenger cars. The car industry is responding to changing market dynamics.

All three of the largest U.S. automakers, including Fiat Chrysler,  Ford, and General Motors,  have slimmed down their production of passenger vehicles in recent years, according to Bloomberg. And SUV sales are expected to make up more than 50% of the U.S. car market by 2020, up from 35% in 2018, according to reports.

Meanwhile, the average cost of a mid-size SUV is about $33,000. The average cost of a new mid-sized passenger car is $25,000. And the average cost of a used car is about $20,000, according to recent data.

Some of the possible reasons for increased car prices include the trade war, where tariffs on imported goods like metal and electronic parts could be adding as much $1,300 to car prices, as well as the ever-increasing cost of new technology powering many standard car features.

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By Jeremy Quittner
Jeremy Quittner is the senior writer for Stash.

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