Seven Million Americans Are Falling Behind Their Car Debt, Fed Says. What Does It Mean for the Economy?

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As per data released Tuesday by the New York Federal Reserve, the number of distressed American borrowers is snowballing. The data showed that more than 7 million U.S. citizens are 90 days or more behind on their car loans since the end of 2018.

The number is more than 1 million higher than the peak in 2010 when our economy was recovering from its most profound crisis since the Great Depression, stated the Fed economists. Back in 2010, nearly 5.3 percent of vehicle loan borrowers were three months late on their payments.

Now, their share reached almost 4.5 percent, due partly to the increased amount of people taking out loans to buy a car. It is a warning sign for the economists though, as the rate keeps rising in spite of the dropping unemployment levels. 

The Fed report also highlighted the $584 billion increase in total auto debt, the highest one since recorded by the government. The total auto vehicle debt is now $1.27 trillion, estimated the economists. 

Nearly 6.5 percent of the total auto debt issued by leasing firms was past due by the end of the last year, according to the data. The amount of debt has marked a significant delinquency level, rising from 1.5 percent in 2012 to 2.4 percent in 2018.

As far as the age of the borrowers is concerned, the analysis proved that auto loans held by young people younger than 30 witnessed a sharp increase in delinquencies from 2014 to 2016. In contrast, the delinquencies for people older than 30 have slowly been climbing.

The fact that Americans cannot cope with their car loans on time is striking as usually this one of the first bills to pay in every U.S household. Unlike Europe where public transportation is widely used, in America cars are often crucial for commuting, and failing to pay on time for it could lead to repossession of one's car eventually.

Fed also concluded that the U.S. household debt went up by $32 billion, to $13.54 trillion in the last quarter of 2018. For comparison, that is $869 billion higher than the crisis peak of $12.68 trillion. 

As for the student debt levels, they reached $1.46 trillion. The credit card balances increased to $870, very close to their crisis peak.

Credit inquiries dropped to their lowest levels in the history of the Fed survey, concluded the report, saying that the Americans nowadays are less hungry for debt.

Despite the low unemployment rates and the booming economy, millions of Americans cannot pay their debts. Do you think the government takes enough measures to prevent that in the future?