Auto Loans During an Economic Downturn
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by: laurawilder
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According to TransUnion, delinquencies on auto loans in the U.S. in 2008 increased almost 18 percent in the last quarter of the year. Historically, there is usually an increase in delinquencies on auto loans the third quarter, but the rate has increased when compared with the same quarter in past years. Edmunds.com estimated that delinquencies in auto loans would lead to over a million and a half car repossessions in 2008. The unmade payments on auto loans are part of a similar trend in unpaid credit card and mortgage bills. In the current economic environment, some consumers must choose which bills are their priorities. For many, auto loans are paid after bills for heating, electric and mortgages. So many consumers rely on automobiles on a daily basis, that waiting to pay auto loans is not an easy decision. Mass transportation is not an option for most people, unless they live in a larger metropolitan areas. Cars are a necessity in most parts of this country and they are a big ticket item that many consumers use auto loans to purchase.
Previous generations planned, saved and used cash to purchase a car. Auto loans have since become quite common, as lending standards were fairly loose the past ten years. In many cases, someone could purchase a car with no down payment. In the wake of the credit crisis, though, lenders are tightening lending standards, requiring bigger down payments and offering fewer loans. The struggling car makers are offering some unprecedented discounts and financing offers to entice potential car buyers right now. The big question for consumers will be whether to purchase with cash or consider taking on auto loans.
The path of least resistance when purchasing a new car is to purchase it with cash. You do not incur debt if you purchase with cash. You also do not have to be concerned with owing more on a loan the car is worth. You do not have to send in monthly payments. You own the title from day one. Ideally, if you cannot pay for it in cash, you should save up until you can. But if you need a car now and are shopping for auto loans, make sure you have a handle on what the loan will cost you in the long run. Do not purchase a car whose price is beyond your current financial means. And do not forget that you will need to insure, gas up, register and license your new ride. Downsize to something more reasonable, if the payments will be tight for you. Do not let yourself be talked into purchasing something more expensive than your budget will allow, even if you have been approved for financing or auto loans for that amount. You are the only one responsible for your bills. You know what you can handle financially, so do not spend a penny more.
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