Apr 3, 2017

America's subprime auto problem

Wall Street analysts have worriedly watched rising subprime auto delinquencies—with some even suggesting similarities to the subprime real estate market of 2006.

Such interpretations are very likely overblown, as the subprime auto market is far smaller than subprime real estate was in 2006. Meanwhile, that cars are so easily recoverable and resold makes these loans less of a threat to the solvency of lenders.

A massive burden: Nonetheless, these loans illustrate the burden working class Americans must bear just so that they can continue to be productive members of society. These loans typically bear an interest rate of 14% over 67 months. Given the median used car costs roughly $19,000, assuming a 10% down payment, that means $369 monthly payment—$112 of which is interest—a huge burden for a minimum wage laborer.

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