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Auto loans continue to drive consumer credit

[Sep 12, 2011.]


The Federal Reserve posted its consumer credit figures for July on Friday, and they showed that Americans continue to borrow heavily. However, people are being discriminating in the obligations that they're choosing to take on, with credit card debt actually dipping (after a rise in the second quarter of this year), but educational and auto loans both rising.

Auto loans most popular form of credit

In fact, nonrevolving credit, which mainly comprises those school and auto loans but also includes those for mobile homes, boats, trailers and vacations, jumped by $15.4 billion. That equates to an annual rate of 11.25 percent, according to the Fed.

However, you probably don't need to panic about another credit bubble quite yet. In its report of the Fed's data, The Boston Globe said that, at $2.45 trillion, total consumer indebtedness across the nation is only about 2 percent higher than it was last September, which was the lowest it's been in the last four years.

The Globe quoted Troy Davig, who's a senior economist with Barclays Capital, as saying that July's increase in credit was largely due to auto loans. Why the spike? Well, it seems to be at least in part a byproduct of the earthquake earlier this year that disrupted Japanese car manufacturers and left dealers' lots in this country without many models that are favorites of American car buyers. It seems that a whole lot of people decided to postpone buying their new cars until Honda, Nissan, Toyota and the others could fix up their broken supply chains.

A bit more complicated?

That's the story that the Globe ran, but reality may be a little more complicated. The Edmunds Auto Observer says that Nissan's July sales were up 3 percent compared with the same month in 2010, but that Toyota's were down 23 percent and Honda's down a whopping 28 percent. GM, Ford and especially Chrysler (which was up 20 percent) all showed healthy increases over the same period.

So Detroit has somewhat less to be worried about than the Globe's report may have implied. Many consumers still want to buy American, and that means that much of the money released through higher auto loans can stay in the country. Indeed, it's worth remembering that, even when people buy foreign cars, their spending still provides boosts to the American economy. Those cars are unloaded by American longshoremen, shipped to American dealers on American-owned trucks driven by Americans, and sold by American salespeople. All the way down the line, those Americans spend their pay checks in American stores, on employing American contractors to remodel their homes, and in paying taxes to American state and federal governments.

Quotes for auto loans

Whether you plan to buy a domestic or foreign car, you owe it to yourself to get yourself the best finance deal possible. So be sure to find competitive quotes for auto loans before you begin to shop for your vehicle.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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