When times are tough and must decide whether to feed your family or make your car payment, you’re probably going to choose your family. You’re not alone. A new report published in February 2019 revealed as many as 7 million Americans were more than 90 days overdue on their car payments. Late payments typically incur late fees which increase the amount you owe
The New York Federal Reserve believes there are several possible explanations for this trend:
- Student loan debt is among the reasons for auto loan delinquencies among borrowers under 30 years old.
- Auto loans are more inflexible than credit cards that allow you to make a minimum monthly payment. You can always pay more on your auto loan but not less than your set monthly payment.
- Lenders approve borrowers with credit scores of 620 of below for half of all auto loans, leading to higher interest rates for more financially challenged individuals. In turn, these higher interest rates increase monthly payments.
How to avoid stretching yourself too thin
There are pitfalls to avoid when shopping for an auto loan. Do your research and calculate your budget before purchasing the vehicle. This will minimize the chances of overextending yourself with a car payment.
Saving for a down payment is another great way to reduce your monthly payment. Auto Trader recommends a down payment of 10-20 percent of the cost of the vehicle. A down payment helps avoid paying interest on taxes and titling and licensing fee. This allows you to finance just the amount of the vehicle.
If you’ve already purchased your vehicle and are falling behind, don’t ignore it. Communicate with your lender and see if there is a possible solution. You will still have to make the payments, but the lender may work with you in some way. Millions of people have fallen behind on their car payments and if you’re one of them, facing the problem head on is the best way to find a solution.