Americans continue to drive up their debt load because of their vehicles, according to a new analysis of Federal Reserve data by Finder—more than 100 million people hold $568.6 billion in auto loans, which now make up 9.28% of all U.S. debt.
While debt of some sort—either from a mortgage or student loans or credit cards—seems like an inescapable fact of life, some consumers have trouble keeping up with the payments. In 2018, 4.3% of active auto loan accounts were delinquent 90 or more days. That’s not surprising given that the average amount borrowed for a new car was $31,099, or $515 a month, and the average amount borrowed for a used car was $21,375, or $398 a month. Currently, the national average for U.S. auto loan interest rates is 4.21% on 60-month loans.
How to get out from under auto loan debt
If you’re struggling to make car loan payments, there are several steps you can take to help get yourself back on the road to financial security.
Get together a debt roadmap. The first thing to do is to assess your current financial situation and make a plan. If you visit a financial counselor, he or she can work with you and your lender to set up an affordable repayment plan. As a last resort, consider selling the car.
Signal to your lender that you’re in trouble. As soon as you start to fall behind on your payments, notify your lender. They probably won’t be thrilled, but the lender will feel more inclined to work with you on a more flexible payment plan if you come to them, rather than waiting for someone to knock on your door asking for the money you owe.
Avoid making a bad deal out of desperation. Being in debt and behind in your payments understandably places a lot of stress on you, but remember to keep a level head and not take a quick fix that will only prolong your misery. For example, a dealership loan program will often let you trade in your vehicle for less than the amount you owe, and then roll the difference into a loan for another car. Such a deal is basically the auto equivalent of paying off credit card debt with another card, which almost always ends in digging yourself in a deeper hole.