The average cost of a motor vehicle these days is $31‚000.
It’s a price tag few can afford‚ especially with traditional‚ 60-month loan‚ which breaks down to more than $500 monthly.
Our Los Angeles bankruptcy lawyers know that is why many are turning to loans that stretch anywhere from 75 to 100 months‚ extending repayment lengths by several years.
The practice‚ which has financial pros and cons‚ has increased as consumers‚ still on shaky financial ground‚ are seeking to keep payments low‚ while banks are just now loosening the reins and allowing longer-term loans.
In the last quarter of last year‚ average new car loans were up to 65 months‚ the longest in history. Experion Information Solutions Inc. reports that nearly a fifth of all new car loans were between 74 and 84 months. A handful were up to 97 months.
Looking back to 2009‚ only about 10 percent of loans fell into this category.
On one hand‚ this type of loan allows consumers to have nicer vehicles and keep payments lower so they can better afford day-to-day expenses.
On the flip side‚ consumers who have taken on a loan that stretches six to seven years are assuming a loan that is going to take considerably longer amount of time to have positive equity in a vehicle. Positive equity is when you owe less on something than it’s worth.
What that means is that we’re going to be seeing more people “underwater” on their vehicles. For some‚ this may not be an issue‚ as they are planning to hang onto it long term.
However‚ if someone wants to later trade in the vehicle or sell it – or worse‚ if they have no choice but to do so – having a vehicle that is underwater can make this extremely difficult. It means that the consumer is going to have to assume a large amount of debt up front just to unload the vehicle.
There isn’t a great deal of risk for auto lenders in this because if an individual can’t keep up with payments‚ the vehicle can simply be repossessed. But this is bad for consumers because it will inevitably damage your credit‚ making it more difficult to get future loans for things like another vehicle or a home.
With the percentage of subprime loans expanding‚ consumers need to understand their options. A debt of $30‚000 can quickly snowball into a very serious situation for someone who is not able to keep up on payments.
While this alone might not be enough to cause someone to file for bankruptcy‚ most people have more bills to pay than just their vehicle. If they have trouble covering one‚ inevitably‚ they have trouble covering the others.
Our Los Angeles bankruptcy lawyers are here to help you lay bare your financial options.
A Chapter 7 filing will allow you to walk away from most of your outstanding debts‚ while a Chapter 13 plan will offer you the chance to repay a reduced amount to your creditors over a longer period.
If you are contemplating bankruptcy in Los Angeles‚ contact Cal West Law to schedule your free consultation. Call (818) 446-1334.
Introducing the 97-month car loan‚ April 9‚ 2013‚ By Mike Ramsey‚ The Wall Street Journal