Economic Perspective: The Condition of Vehicle Buying

NC State College of Agriculture and Life Sciences professor Dr. Mike Walden working in a recording studio.

MARY WALDEN:

“Today’s program looks at the condition of vehicle buying. Mike, for many households, owning and operating vehicles takes the second largest bite from their income behind only shelter. Many households also borrow to buy their vehicles. So with the importance of vehicles to household finances, bring us up to date on the current status of vehicle finance.”

MIKE WALDEN:

“There’s a number of trends here. First of all, anyone who has bought a vehicle recently know that they’ve gotten more expensive. Mainly due to new technology. And what that is doing is causing many buyers to purchase a vehicle on time, using debt, and they’ve expanded the length of time they’re carrying that debt. In fact, 20 years ago the average auto-loan was 55 months. Today, it’s up to 66 months.”

“This means that auto-debt is only behind mortgage debt and student loan debt in size for the average household. Now has this caused problems? Well, delinquencies on auto debt have crept up slightly, but the credit scores of borrowers is still high. So one is balancing out the other. Still, however, what you’re finding today is lenders have begun to tighten their lending standards. They’re not as lenient in terms of the credit ratings that they’re willing to lend to.”

“So I think the bottom line here is auto debt has become more important. It’s become more expensive, and there’s some issues in terms of delinquencies going up. But there’s no glaring problem right now. Still, we need to watch it.”

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