There’s no denying that, right now, it’s a great time for everyone to secure an auto loan. All sectors of the auto loan market are growing, more and more lenders are getting involved, and simply put, if you need a car, you can get one. The question many are beginning to raise, though, is whether or not this credit availability for consumers is about to hit a wall.
Loans And Cars
You’ve likely heard before that auto financing is in a “bubble” phase, not unlike the mortgage market in 2008. Part of this is the fact that a large number of loans are being issued to what the industry calls “subprime” borrowers, or, simply put, borrowers with less-than-perfect credit. The concern is that with the number of loans being issued, eventually the market will hit a point where consumers are unable to pay those bills. In other words, the bubble will pop, and suddenly the market for buying cars will contract quickly and painfully, making it harder for everyone to buy a car.
This is actually incorrect for a number of reasons. Cars are not valued the same way houses are, and we don’t pay for them with the same amount of money or in the same way. Similarly, consumers pay their auto loans first, as a rule, since they need their cars to get to their jobs. It’s certainly possible for a lender to issue a bad loan, but the terrible, impossible-to-pay loans of the mortgage crisis just don’t exist.
While it’s not impossible for a bubble to form in any credit market, the reality is that the sheer amount of money lost and the massive economic problems that resulted from the mortgage crisis simply can’t repeat themselves with cars.
But while the bubble panic some financial analysts and newspaper columnists are promoting is ill-conceived, there is cause for concern. And as a consumer, it’s worth being aware of.
The Law Of Financial Gravity
The short answer is that the auto industry can’t keep selling more and more cars forever. While 2014 was a boom year and 2015 promises to be similarly, the simple fact of the matter is that sooner or later, Americans will have bought all the cars they need for a while, and the industry will contract. Still, it’s a pattern we’ve seen before and that the auto industry is well aware will eventually come to pass again.
Similarly, there are always dangers for consumers to be aware of. While many lenders are legitimate, there are going to be individuals who will offer you more loan you can afford, and there are other unethical concerns you should be aware of. So, how to protect yourself?
Be your own advocate. Research every lender you work with closely, and work out what payments you can afford in your budget. And, above all, remember that you can afford to buy a car, no matter what your credit, if you put your mind to it. Everyone deserves a new car, and it falls to us to buy it.