Car buyers borrow more, for longer terms

Adriene Hill Aug 14, 2012

Car buyers borrow more, for longer terms

Adriene Hill Aug 14, 2012

Kai Ryssdal: It’s still, lo these many years after the financial crisis, not so easy to get a mortgage in this country.

Getting a car loan, though? Not so hard at all. Lenders are opening their vaults for nearly anybody wanting to buy. Marketplace’s Adriene Hill reports.

Adriene Hill: The car market is looking pretty good to lenders these days.

Paul Edelstein: It’s a better bet to do auto lending than it is to do mortgage lending.

Paul Edelstein is an economist at IHS Global Insight. He says right now people are less likely to get behind on their car payments than their mortgages.

Edelstein: I bet there are some households that figure they can do without owning a home, they have another option to rent. But you need a car to get to and from work to make any payments on anything.

And as lenders feel less risk, they feel like making more loans. estimates about 8 percent of current car loans are going to sub-prime borrowers.

Alec Gutierrez is an industry analyst at Kelley Blue Book.

Alec Gutierrez: To be honest, they are pretty much lending to anyone with a pulse.

People are financing about 90 percent or so of the value of the car, and taking out five-year loans, on average, to lower their monthly payments.

Which can lead, pretty quickly, to underwater car loans — when you owe more than the car is worth.

Gutierrez: You will be underwater for a short period of time as you drive it off the lot.

During the recession, people stayed underwater with their car loans as the value of used cars fell. But today, Gutierrez says, that’s happening less.

Gutierrez: The used car market is about as strong as its ever been.

Which means, come trade in time, more people are finding themselves getting paid, rather than paying for, their old car.

I’m Adriene Hill for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.