A recent surge in loan defaults and car repossessions is causing significant financial strain, with consumer advisor Clark Howard issuing a warning against taking out extra-long auto loans.
The increase in defaults and repossessions is not only affecting consumers but also impacting auto lenders, as evidenced by a recent bankruptcy in the industry. Howard highlights that many consumers are opting for loans that extend seven years or longer, which can lead to financial difficulties.
“When you take out a really long loan, you’re stuck with it because you’re upside down in it, meaning you owe more than what the vehicle’s worth,” said Clark Howard, a consumer advisor.
Howard explains that the problem arises when consumers take out loans longer than five years, often resulting in them owing more than the vehicle’s value. This situation, known as being ‘upside down’ on a loan, can lead to repossession if payments are missed.
The recent bankruptcy of an auto lender underscores the broader financial challenges facing the industry as more consumers struggle to keep up with their loan payments.
Howard advises consumers to avoid loans longer than five years to prevent financial strain and potential repossession.
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