According to consumer credit reporting agency Equifax, Americans now owe a staggering $902.2 billion in auto loans – a 10 percent increase from this time last year and an all-time high.
That might seem like terrifying news to folks wary of debt or those who fear another lending bubble like the one that helped launch the Great Recession. But Equifax says that there's no need to worry – at least not yet.
Equifax's confidence stems largely from the fact that the number of delinquencies on auto loans is also hovering in record territory – record low, that is. For the third straight month, borrowers have proven diligent, with seriously delinquent accounts making up less than 1 percent of America's total outstanding loan balance.
What does that mean for consumers like you? Most importantly, it means that, if you've been wanting to borrow money for a new or used car purchase, now might be a good time to do so. According to Dennis Carlson, Equifax's Deputy Chief Economist, "Lenders are responding to record low delinquencies by offering great rates and terms, while consumers are responding to the improving economic conditions by making the decision to purchase newer vehicles."
In other words, there's plenty of moolah being borrowed, and so far, consumers are handling their loan obligations well. As long as folks continue repaying their debts on time, banks and other lenders are eager to make borrowing easy (and cheap).
How long will this bit of smooth sailing last? It's hard to say, but there could be a few storm clouds brewing on the horizon. Equifax says that sub-prime loans – generally, loans made to consumers with poor credit scores – are at an eight-year high and growing. Currently, sub-prime loans total $46.2 billion, or 28.2 percent of the total balance of new auto loans.
Not so long ago, "sub-prime" would've struck fear into many people's hearts – a sign of a bubble, ready to burst. But today, the term doesn't carry quite the resonance that it once did. During the recession, many Americans lost their jobs, and as a result, perfectly honorable borrowers with good credit histories saw their ratings plummet. Sub-prime or "second chance" loans allow many of those people the chance to return to the market.