Consumer Reports Says You’re Paying Too Much For That SUV Loan
It’s a tough time to buy an SUV, or any car, really. There’s a https://www.motorbiscuit.com/car-shortage-buy-luxury-suvs-right-now/microchip shortage that feels as though it may never end. There are supply chain problems that are wreaking havoc on car production and sales. There are few SUVs to be had, and those that are available are more expensive than ever. Even used SUVs are more expensive than ever, sometimes rivaling or beating the price of new SUVs. And on top of all that, SUV auto loans are pretty much out of control. Here’s a look at why Consumer Reports is concerned about the current status of car loans.
Banks are taking advantage with carSUV auto loans
Consumer Reports investigated car loans, including roughly 858 car, truck, and SUV loans. These came from 17 auto lenders, including some major banks. They found that the average car loan monthly payment hovers around $600 per month, which is 25% higher than it was ten years ago. In fact, auto loans including SUV loans, total more than 1.4 trillion dollars in the United States. That’s a whole lot of car payment debt.
Consumer Reports’ investigation found that there was a wide divergence in what people are paying for their car loan interest rates. That’s even when customers have similar credit ratings and incomes. Some borrowers are even paying about 25% a month for their auto loans, which is an exorbitant number.
Part of the problem, according to Consumer Reports, is that, “Dealers and lenders may be setting interest rates based not only on risk—standard loan underwriting practice—but also on what they think they can get away with. Studies show that many borrowers don’t know they should, or even can, negotiate the terms of a loan, or shop around for other offers.”
Is a car loan a bad idea?
While a car loan itself may not be a bad idea, getting into a bad SUV auto loan certainly is. Kathleen Engel of Consumer Reports and Suffolk Law School, says, “You’re not helping somebody to get a car if the odds are they’re going to lose it…That’s not getting somebody a car. That’s taking their money.” In fact, one in twelve people with a car loan were more than 90 days behind on their loans in the spring of 2021.
Car loans are getting longer than ever. The average term length now is six years. As more people buy SUVs and trucks, which tend to be more costly than sedans, the amount that they need to borrow increases, and the length of their loans do too. In addition, people often owe an average of $3,700 more on their SUV or car than it’s worth.
What is a good car loan interest rate?
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The average APR for car, truck, and SUV loans is about 2.34-3.48% for people with poor credit for used car and SUV auto loans. Those with poor credit typically see SUV loan interest rates of 3.66 to 5.49% for used vehicles. Still, there are thousands of people with car loan interest rates of 10% and even 15%. That’s insanely high.
In addition, borrowers shouldn’t spend more than ten percent of their income on an auto loan. Consumer Reports says that people often don’t act in their own best interest when negotiating car loan terms. It isn’t intentional. People tend to become fixated on the car or SUV price and less on the terms of their auto loan, like how long it is, and what the interest rate is.
One example from Consumer Reports illustrated how bad SUV auto loans can be right now. A Texas consumer with prime credit bought a Chevy Suburban for $71,148. They ended up with a 13.55% interest rate, resulting in payments of $1,628 per month for six years. Altogether, they’ll have paid $122,000 for their Chevy Suburban.
Those with poor credit or low income tend to get into the worst situations. They end up with the worst interest rates and terms, and are often stuck, with limited options. So what can be done? Try to shop around for your auto loan terms. Keep your SUV loan payments under 10% of your income. Make sure you know what you’re signing and getting into before you get that first SUV loan bill.