Repo Madness: It's getting harder to buy a car and hold on to it

Increasing car repossessions are one of many canaries signaling economic trouble for Americans.

As if we needed more proof, a rising wave of car repossessions indicates the significant economic stress many Americans are feeling and the broader economic challenges the next President will need to address.

According to the latest data, car repossessions are up 14% since pre-pandemic levels and 23% year over year. While lenders were more lenient during the pandemic, things have tightened up since 2023. Now more people are struggling to afford their bills.

Average interest rates on new vehicles sat around 7.3% in the second quarter of 2024 (7.49% for used). Automotive industry analysts say people pay about $740 a month, on average, just in payments — a new all-time high and twice as much as 10 years ago. That doesn’t include insurance, which is also higher than ever, as well as the other associated costs of car ownership like fuel and maintenance.

Lenders are increasingly extending loan terms to 72, 84, and even 96 months to reduce the monthly payment amount and get people to sign on the dotted line. To help you out with the quick math, 72 months is 6 years and 96 months is a full 8 years!

Experian reports that the average auto loan term in the first quarter of 2024 was 67.62 months for new cars and 67.37 for used cars. In that same time period, 68% of new car buyers signed for loans with terms of 61 months or more and slightly more than 70% of used car buyers agreed to the same terms.

That means people are opting to take 5.5 years, on average, to pay off their cars. That might lower their average monthly payment, but they will usually pay a higher interest rate and could end up adding tens of thousands of dollars over the life of the loan.

These numbers are disturbing indicators of a more dire underlying economic situation.

“Something similar happened back in the mid-2000s, starting with delinquencies in auto loans and credit cards,” writes Christopher Smith in motor1.com. “Then the housing bubble popped, wrapping up the decade with the Great Recession.”

Cox Automotive forecasts that repossessions will continue to increase into 2025 and then hold steady thereafter. Regardless, the glut of cars in the market — combined with the very real possibility that banks, lenders, and dealerships will be massively underwater on car values — compounds the economic issues facing this economy.

The mug you see above is Brandon, the creator and host of Car Questions Answered on YouTube. He’s been calling this increasingly painful situation in the car market for quite some time. As a small used car dealer himself, he only stocks his lot with sub-$5000 cars — typically the good ones that last 200,000 or 300,000 miles (you know the brands). And they can only be bought with cash, no financing. He’s on to something.

So, while it’s possible you may not be in over your head with your car payment, your neighbor, coworker, or friend may secretly be concealing their hell of debt enslavement. Help them. Pass along some personal but practical advice, as shared with us from our friend and mentor, Peter Grandich. He says:

If you could pay off and somehow not have debt, not have a mortgage, not have to have $4,000 worth of leases sitting outside where you can just have a couple cars to get you to and from the place… As much as you think that's not going to bring you joy, not having that financial pressure on you is just an enormous relief that automatically leads to more happiness.

Pride aside, once you’re rid of the Mercedes payment, and instead drive that old Mercury around town — payment free — you’re gonna be a lot happier.

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