Repo Rates are increasing!
With the recent skyrocketing prices of new and used cars, along with the attendant interest rate increases, it’s no wonder that car loan delinquencies and subsequent repossessions are on the rise as well. The average amount financed for a new car in Q2 2022 was $40,290 and $28,534 for used cars. Other sources have cited numbers for new car financing at $39,340 and $30,830 for used. The average monthly car payment was $677 for new and $515 for used. An experienced collections lawyer from The Law Offices of Neil Crane explains that cash-strapped consumers trying to adjust to new budgeting realities under recession-like conditions, these circumstances often require a difficult flip of the coin between paying for a car to drive to work, or paying for the roof over their head. In most cases, the roof has to win.
Many Americans are facing rising debt overall as pandemic stimulus funds have run out, and the auto industry in particular is feeling the effects. The New York Fed published data in May indicating that the auto debt in the US rose by $87 billion in the year ending March 2022. The expected national average for repossessions in 2022 is around 2.2 million, as opposed to an approximate 1.7 million in 2019, an increase of over 25%. Some experts also blame pandemic era stimulus funds and mortgage moratoriums for an increase in profligate spending on items like luxury automobiles.
Perhaps not surprisingly, the auto loans of Gen Z and Millennial young adults are defaulting at a shocking rate. The repossession of a car with attendant costs and sale at auction leaves underwater consumers with large and immediately-due deficiency amounts. Despite the repossession of the car, consumers remain liable for the full amount of the debt, which can often be tens of thousands of dollars due and payable within weeks of a repo. The harsh consequences of defaulting on car loans have always been severely detrimental to a family’s financial future, and may include:
- Large deficiencies and resulting collection lawsuits
- Negative affect on your credit score
- Repossession and sale of your vehicle
- You will still be liable for any monies owed after any such sale, resulting in
- Collection lawsuits for the deficiency amount, court costs and legal fees
Given the increase in the costs of new and used cars, coupled with rising inflation and the average monthly payment consumers need to concentrate on affordable cars and significant down payments.