This Age Group Holds Most Car Loan Debt
For Former ‘90s Kids, Alice Isn’t The Only One In Chains
There’s no doubt car loan debt has reached crisis proportions in the U.S.
Americans are struggling with a jaw-dropping $1.27 trillion in auto loans, while a record 7 million of us are three or more months late on our car payments, inviting the immediate risk of a repossession and credit hit.
And while some may assume that uncomfortable debt situations are the domain of the younger set, it’s actually my age group, Generation X, that’s shouldering the largest share of the car loan burden, according to a recently released LendingTree study.
Hey, reality bites.
Gen Xers and their Car Loan Debt
The study shows that a whopping 59.7 percent of Americans aged 39 to 54 (the MTV Generation) carry an auto loan, compared to 54.5 percent of Millennials and 53.9 percent of Baby Boomers. Meanwhile, only 36.2 percent of Gen Z has a car loan—either because they’re native to other ways to drive or they haven’t gotten their license yet. Probably a bit of both.
Not only do Gen Xers hold a higher percentage of auto loans than any other generation, they’re also as under water on them as the baby on the cover of Nirvana’s “Nevermind” album (don’t worry, he turned out fine).
According to the study, Gen Xers carry a median of $18,741 in car loans, a particularly dangerous type of debt since many cars can lose more than half their value in as little as three years. By comparison, Baby Boomers carry a median auto debt burden of $17,185, while Millennials carry $16,200. Generation Z clocks in with the lowest median auto debt in the study with $13,666.
Why Generation X?
So what’s up with Generation X and its car loans?
Jacob Lunduski, Lead Credit Industry Analyst at Credit Card Insider, says the reason comes down to Gen X having more money than their younger counterparts, who are still rolling in starter cars or finding other ways to get around.
“The older generations are usually in a better position to pay [car loans] down, whereas the younger generations may rely on public transportation, hand-me-down vehicles, and used car purchases,” Lunduski said.
Sitting in the prime of their earning lives—and often having built up equity in their homes—members of Gen X may simply feel more inclined to spend freely on big-ticket items—even if buying a new car is something that financial planners say you should never, ever do.
There’s also the fact that Gen Xers log the greatest number of miles in their vehicles, according to the Federal Highway Administration. So even if they’re taking on massive amounts of debt, at least they’re putting it to use?
So What’s The Solution?
According to LendingTree, customers can improve their auto debt situation by overpaying on their loan as often as they can and slinging cash toward the principal as quickly as possible. They also suggest shopping around for loans, rather than just automatically going with a dealer’s offer. The company also points out that consumers should be on the hunt for refinancing opportunities throughout their loan period.
Of course, another solution is to get a car using a more flexible arrangement than a traditional car loan, so if any financial troubles hit, you can choose to get out of the contract before missed payments pile up. That’s something we at Fair are happy to help you with.
But don’t take it from us. Take it from the millions of Americans currently struggling with auto debt, including a former truck owner named Josh Haste, who posted his account on Money Life Wax about how the payments for a new truck woke him up to the bad bet of financing a depreciating asset like a car.
“[L]ooking at purchases in terms of present value can lead you down the wrong path. Instead, look at purchases in terms of future value,” he wrote. “The $5 coffee in 30 years is $40 in 30 years, or 8 coffees. The $25,000 car now is going to be worthless in 30 years, but had that money been invested it would be worth close to $200,000… I can say all of this because the biggest mistake I have made in my life financially has been a new car purchase.”