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Auto loans: what's really happening

[Nov 22, 2010.]


Auto loans in decline? No

Barron's ran a story November 20 about consumer debt. And it contained some encouraging facts. For example, it said: "After three years of deleveraging, total U.S. consumer debt has fallen by roughly $1 trillion, to $11.58 trillion, from a peak of $12.5 trillion in the third quarter of 2008, according to data from the Federal Reserve Bank of New York." That's absolutely true.

But then it went on: "In particular, credit-card debt has shrunk by 16%, to around $730 billion, and auto loans have fallen about 12%, to $710 billion." That may be true, too, although it's hard to reconcile the data with other Fed figures (see below), but it's only part of the story.

The Federal Reserve Bank of New York's study (Quarterly Report on Household Debt and Credit--November 2010) describes a fuller picture: "Auto loan originations rose again in the quarter [2010Q3], and are now nearly 43% above their trough levels of 2009Q1."

Cheap auto loans booming

The fact is, as this blog reported two weeks ago, the auto loans sector is recovering extremely quickly. In fact, non-revolving credit (which mainly comprises auto loans ) rose by more than $10 billion in September to $1,597.8 billion. That's only $5.8 billion less than it was in 2008, when it was at its highest in the last five years.

Those figures are based on the Fed's "G. 19 Consumer Credit--September 2010" statistical release, published November 5.

Great time to trade in

The Wall Street Journal told its readers November 10 about the great trade-in deals that are currently available. It said:

Deals are particularly good for people trading in a used car or truck. If your old ride is in good condition and five years old or less, you may get a better trade-in offer, or selling price, than you could have expected a year ago.

The Journal based its report on the findings of the Manheim Consulting Used Car Market Report 2010. It explains why used vehicle car and truck trade-ins are now so much better. Apparently, demand for used vehicles reached a 25-year low in 2009, but the supply also fell, allowing values to rebound.

Cheap auto loans from dealers not so cheap?

The Center for Responsible Lending has long campaigned against the kick-backs, loan packing and scams (to quote the CRL's words) that many dealers practise when it comes to arranging auto loans. It says: "Auto dealer loan markups cost Americans more than 20 billion dollars each year." Now it's introduced an Auto Dealer Markup Calculator that can help you to work out how much you personally stand to be ripped off.

If you'd rather avoid putting your dealer's kids through college, you can always arrange a finance before you even step onto his or her lot. Just click through for competitive auto loan quotes.


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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