This could blow up in everybody’s face. While we don’t have relevant Canadian numbers, we’re well aware that the situation is just about as dire here. The US’ economy is currently in the midst of a solid recovery following Obama’s second term: Unemployment is low, money’s flowing somewhat and up until very recently, interest rates were ridiculous.
This has led to consumers leasing or financing far more car than they, in reality, can and should. The average length of an auto loan in now 69.2 months with average monthly payments in the $523 range. The fatal attraction of low rates has created this monster and despite the decent economy, loan delinquencies are on the rise.
What many consumers don’t get is that long loans typically translate into negative equity, in other words, you end up owing more for the car than it’s actually worth. If you default, credit is severely damaged as well.
There’s no end in sight to consumers shopping for a monthly payment. The only element that could slow this trend down is a further hike in interest rates, and shorter terms.