Auto Loan Interest Skyrocketing In The US – Economic Recession?

In recent times, various economic reports are raising big alarms about the current condition of the US economy and some of them even point to monumental collapse.

Furthermore, the automobile financing market could be under major stress and some financial experts even call for a massive wave of repossession as early as the initial period of the year 2023.

In fact, Elon Musk even tweeted the condition as "Potentially the biggest financial crisis ever". Some of the financial experts even claim that many lenders are ignoring typical reg flags associated with loan applicants who are already struggling to pay their previous auto loan properly.

As such a condition arises, lenders will be forced to implement repossessions and as mentioned, many experts believe this to happen as early as the first part of the year 2023. While this may seem like a standard bank procedure, it is a bit more complicated than that as most of these cars are currently worth less than the money owed.

Diving into details, a good number of people started purchasing cars during the pandemic to avoid public transport and as a result, the demand for cars were on the higher side. Now, the demand for the cars have reduced and as a result, there are more used cars in the market and as a result, the value of these cars went down as well.

This problem is further accentuated by a drop in wage growth in the US for 20 straight months along with rising inflation. This puts massive pressure on middle-class US households who have historically struggled to strike a good balance between expense, income and financial savings.

In order to stop banks from incurring losses, car loan interest rates are on the rise. At present, the used car loan interest rate stands at 8.36 per cent and the new car loan interest rate stands at 6.06 per cent. However, customers are now relying more on credit unions for loans as they charge 5.94 per cent and 4.43 per cent for a used car and new car loans, respectively. This further impacts the business of banks.

Thoughts About Auto Loan Crisis In US & Possible Recession

At this rate, there is a high possibility of banks "Sinking" and this will result in the possibility of an economic crisis. This potential crisis has enough potential to kick-start an economic recession in the country unless the US government pumps some money into the system to ease the current situation. Moreover, it is high time that the US government needs to understand that spending money on its people is better than 'flexing muscles'.