Mortgages and student loans are generally the biggest debts we face, but car loans, the third-largest form of debt in the U.S., can also be pernicious and affect our financial plans. Americans had over $1 trillion in auto loans outstanding in the third quarter of 2015, according to the Fed.
Nearly a quarter of adults surveyed said they or their spouse either purchased or leased a new or used car or truck in the last year. About two thirds of those who purchased a new or used vehicle took out a loan to do so. And 12 percent of car buyers who used loans to pay for their vehicle took out a loan with a longer repayment period than the amount of time they planned to own the vehicle.
That’s a potentially dangerous financial situation to be in, considering how high interest rates on car loans can be. Five percent of those who got their loan from a car dealership or seller and 4 percent who got the loan from a bank, credit union or Internet lender were paying an interest rate of 10 percent or higher.