Auto loans could pose a bigger threat to young Americans than student loans. For the first time, the outstanding volume of auto loan debt just surpassed student loan debt.
Auto loans could pose a bigger threat to young Americans than student loans. For the first time, the outstanding volume of auto loan debt just surpassed student loan debt.
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no. they won't. not under the present system. unlike student loans, auto loans can be discharged during bankruptcy (it is difficult to do with student loans) and you can easily sell the asset to pay off all or part of the balance (can't sell your transcript or degree, just yourself to an employer).
Right? This is the stupidest fucking article. Like you can even have the car repossessed and the loan terminated.
Auto loans may legit be one of the safest type of loans available to students.
Where it gets spicy is:
Buying (financing) a new car, and then having it repossessed at half the purchased value (still 50%) debt to pay
If people have cars repossessed en mass, the second hand car market will be affected, prices for used cars go down (because the supply goes up). This makes repossessions not cover the whole loan, see above point
Finally, as more and more Americans no longer have access to cars, they also lose access to... A lot of society (work, education, healthcare). If this affects a large enough percent of the population, there will be macro effects.
Banks suddenly getting burned when a bunch of bad loans stop getting paid at around the same time? What could possibly go wrong?
Getting some 2008 vibes. Thats what we need.
Meanwhile housing market is nuts. Nobody wants to sell because they’ll just have to buy and loose their sweet 2.75 refi. So now homes are still at jacked up prices because supply is low, but average 30yr mortgages are still at 7.8. So buyers, especially first time buyers, get stuck with an overinflated principle and a higher interest, getting the worst of both ends, and hoping either values hold or rates fall and they can refi in a few years.
If you remember 2008, it wasn't the bank execs that were burned, it wasn't even really the bank employees that were burned (although some did lose their jobs)
It was everyday people that lost their homes, their jobs, their lives.
I'm all for a bit if chaos in the name of redistributing wealth, or resetting some madness that has worked it's way into society, but I don't think this is it
If it's getting repossessed at 50 percent value, that means it's getting repossessed in the first year, and probably shouldn't have been financed in the first place. BUT, let's say they did, gap insurance is a thing that exists, for cheap, to cover that exact situation. Regardless, that debt can be cleared via bankruptcy, and is peanuts compared to most student loan debt. Smaller plans, multiple outs and protections available from the get go.
On top of that, student loan debt already prevents people from buying cars due to high debt to income, and already low post-grad income tied up paying loans, which are often as high as a new car payment, not to mention insurance and registration. On top of that, it makes them higher risk, raises their interest rates, and makes financing even more challenging.
There is no sane argument between the two.
I'm not an expert but in my very brief googling, it doesn't look like GAP insurance covers getting repoed.
https://pocketsense.com/gap-insurance-cover-car-repossessed-8067238.html
I don't know mu h about USA student debt, I'm in the UK. That does sound pretty different
I was trying to point out how a wide spread auto loan defaults could have far reaching consequences
To play devil's advocate, used car prices do not follow supply and demand. They follow perceived supply and demand by a conflict of interest. If you try to buy a used car, your salesman gives you info to push you to pay more. They have other lots to make it seem like there's low supply.
Carvana and CarMax operate similarly.
And if you feel like knowledge is power, Manheim/Cox numbers don't matter when you're purchasing through a greedy middleman.
Totally, however, to play devil's advocate of that... There is only so much inventory that these companies can hold. It's similar situation to house price crashes. Banks are left with too much stock.
However, with property, banks can rent them out.... Maybe we will see a huge industry of second hand rent-from-large-corporation-and-never-own-anythings popping up soon...
Conspiracy hat on.
Banks have gotten high on their own power. They realize they can compete in residential real estate and starve out the market by artificially decreasing supply and hiking prices. They know the US loves circle jerking (American) auto makers, and will funnel tax money to make them survive.
Banks will want in on the action and will back automakers to follow suit, cut supply/artificially decrease it, and increase prices (more than they are).
In that scenario 1 of 2 things happens, 1) we pay more cash for cars that are necessary for American life 2) we lease/finance ridiculous prices and the bank makes even more profit.
It's win win for them to support auto industry and supply them with the real estate they're holding on the side lines.
Federal student loans are not just difficult to discharge, they're practically impossible to discharge. There are so little valid cases for it, you could count them on one hand. And that does not even take into account the fact that the sitting President and their cabinet can just say, "No, **** you." Even after you qualify and a court agrees with you.
Edit: Just gonna point out that the only guaranteed way to discharge student loans without the federal government possibly overturning the ruling is to simply die. Its an excellent system perfectly designed to ensure that both the public sector and private sector can continue reaping the benefits of social mobility while preying on the most vulnerable segments of the population.
Discharging student debt in bankruptcy is so hard, it made the national news, https://www.forbes.com/sites/adamminsky/2020/01/22/a-judge-just-wiped-out-this-mans-221000-in-student-debt/amp/
But don't cars depreciate a lot? I get that this article is clickbaity. But I think with the elevated cost of cars the autoloan debt is still something to take seriously. Even the response of "its not a big deal, you can always go bankrupt" is pretty wild.
You don't even have to go bankrupt you can just give the car to the bank that has your loan. You'll be fine. Just without a car lol
Not if you owe more than the car is worth, you're on the hook for the difference.
If someone can't pay a $400 payment, they certainly don't have the money to pay the car off. Something something blood from a stone.
Not if they take the car for not paying lol that's where the not paying part comes in. You just get bad credit. Not the end of the world like people make it out to be
They'd legally still on the hook for the difference, and if it's a large enough amount for the creditor to care about they'll come after you for it using the variety of means available. In the US that can include taking the money from the debtor's bank account or having their employer take it out of their paycheck before paying the debtor.
There are some ways around that. You can self-employ and ignore the garnishment request, but that works best if you have a constantly changing client list, like a roofing contractor or wedding-dress-maker or whatever. You have to be careful about keeping cash in your business because they can show up with the sheriff and take any cash, or in extreme cases they can seize non-exempt property (like, they wouldn't generally be able to seize the lawnmower you use for your lawnmowing business).
Also, just not having any money is a pretty good defense. There are limits to wage garnishment for example.
But yeah, in a lot of cases it's not even close to being worth the effort to chase someone down to collect, so you get a ding on your credit report for a few years, and then almost nobody cares.
Then you can buy your own car at auction for pennies in the dollar. As long as you don't need to get a new loan for 7ish years you are free and clear.
As long as you don’t need to get a new loan for 7ish years
Yep, and depending on the severity of the debt and other factors you'll mostly just pay higher interest rates on loans for several years. You have to fuck up pretty bad before nobody will loan you money (though that probably depends on a lot of demographic factors too).
This is what gap insurance is for (well, one of the reasons) although I'm aware that lots of people don't get it.