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Total auto loans in America nearly doubled in 10 years

Carla Fried, Rate.com on

Published in Home and Consumer News

Lease: A car payment that never stops

Experian Automotive says more than 80% of new cars involve a loan, and the average monthly payment for a new car was $563 in the third quarter of 2020. About one-third of used car purchases involve a loan; the average monthly payment according to Experian was $397.

Experian notes that among the most leased models, the average monthly payment is $110 lower, when leased, compared to using a loan.

But leasing is no bargain. The average monthly payment is around $450. And the “savings” is a mirage, as the lease is only for three years. Typically what happens is that a new car is leased after the three years, effectively locking that household into a new round of monthly payments. At least with a loan, you eventually can have five or 10 years driving without a payment.

Driving deep into debt

All debt makes a claim on monthly household cash flow, but some is more productive than others.

 

According to Mark Kantrowitz, publisher of Savingforcollege.com, in 2019 about two-thirds of recent bachelor’s degree grads left school with a diploma and debt. Among those borrowers, their total student loan tab was just shy of $30,000. That’s less than the average new-car loan, which was just under $35,000 in the third quarter of 2020. Borrowing for a used car was an average of more than $23,000.

The average monthly payment for students who graduated with a bachelor’s degree in 2019 is $448, less than the average new car payment and just $50 more per month than the average used-car payment.

There is every reason to question a system where students are required to borrow at all, given the message that a degree is the only way to be competitive in America’s 21st century economy. Especially for public school degrees, where borrowing has become more prevalent as states have pulled back their funding of programs.

But the median lifetime earnings boost from having a bachelor’s degree is more than $750,000.

Cars are just a depreciating asset from day one.

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