In recent years, Americans have embarked on a huge wave of car and truck purchases. Many have paid for their vehicles by taking out a loan.
A record 107 million Americans have car loan debt, according to The data released this week by the Federal Reserve Bank of New York. This represents about 43% of the entire adult population in the United States.
It is a number that jumps out in the eyes. Auto loans are growing rapidly. At the start of 2012, only 80 million Americans benefited from a car loan. In fact, more Americans had home loans than car loans in 2012. But that has all changed.
Today, the number of auto loans far exceeds home loans. It helps explain how automakers have achieved record sales year after year. Car sales hit another all-time high in 2016, although of late the buying frenzy seems to be over.
Related: Auto Sales Slow, Shakes Are Coming
6 million Americans are late in paying for their cars
Americans don’t need to buy new cars every year, and an alarming number of people cannot afford their auto loans. According to the data, 6 million people are 90 days or more late in paying for their car. This puts them in danger of having their car or truck repossessed.
Beth Yeager saw the ugly side of the auto loan boom with her own eyes. She helps run the Pathway of Hope for the Poor program at The Salvation Army in Louisville, Kentucky. Many single mothers with children find themselves in her office at a dead end. They can’t pay their car loan, but if they lose their car, they often can’t get to work.
âIt happens over and over to the poor,â Yeager told CNNMoney, frustration evident in his voice. She hates a lot of cars with the big banners that say things like “Buy here. Pay here. Easy credit.”
Many of the low income people she works with don’t understand credit. They’ve never had it before. They are so excited to be entitled to a car that they sign the papers, even though the interest rates can be astronomical. She regularly sees interest rates over 20%.
âOnce a car repossession is posted on a person’s credit report, it not only impacts their ability to get another car, but also to secure affordable housing,â Yeager says.
Related: Household Debt Surges 2008 High
There is a “human side” to loans that go badly
After the financial crisis, mortgages became more difficult to obtain, but auto loans were easy. So-called “subprime” auto loans were regularly granted to borrowers without a good credit rating. Low-quality loans reached pre-crisis levels in 2015 and 2016, according to data from the Fed.
âThere is a human side to all these loans that go wrong,â Yeager warns.
A mother of three young children came to her for help earlier this year. Her youngest son was born with complications and had to undergo heart surgery. She lost her job while taking care of her child.
Yeager says the mother was faced with the decision to “continue paying for food and rent for the children” or “pay for the car.”
The woman stopped paying for her car and it was taken back. Yeager tried everything, even Goodwill’s Cars to Work program, but the black mark on her credit prevented her from getting help. She walked to work for months before buying a “crappy” car for $ 1,000 that often breaks down. Yeager is still trying to figure out what else to do.
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CNNMoney (New York) First published on May 19, 2017: 8:33 a.m.ET