Many drivers spending over 30 percent of their monthly income on auto loans, car insurance costs also rising
Many drivers are stressed about high auto loan and insurance costs. (iStock)
Buying a vehicle is getting more expensive, with one in 10 drivers spending over 30% of their monthly pay on their auto loans, a MarketWatch study found.
The survey looked at 1,000 drivers and asked how their monthly car payments affected their finances and stress levels. About 40% of drivers can’t afford repairs and upgrades needed for their cars, the survey found.
Auto loans also prevent drivers from meeting other financial needs — 40% of drivers said they couldn’t afford basic essentials due to their high car expenses.
To make ends meet, drivers sacrificed spending in numerous other areas. About 25% stopped eating out as much while 13% of those surveyed stopped getting food delivery and directed that money towards car-related expenses.
High auto loans are contributing to more than just financial strain. Twenty-percent of drivers said they were "very" or "extremely" stressed due to overwhelming car costs, reported the MarketWatch study.
While you may not be able to save on your auto loan, you can cut your auto insurance costs by shopping around for different insurance quotes. With Credible, comparing quotes is easy, and takes just minutes.
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Auto loan delinquencies are on the rise
Auto loans have gotten high enough to the point where some drivers can no longer afford their monthly loan payment. Approximately 7.7% of auto loans became delinquent when annualized, according to the Federal Reserve Bank of New York.
"Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels," Wilbert van der Klaauw, Economic Research Advisor at the New York Fed said. "This signals increased financial stress, especially among younger and lower-income households."
Loan balances rose substantially in 2023, continuing the rising pattern drivers started seeing in 2020. In the last quarter of 2023, auto loan balances rose by $12 billion, making the total outstanding balance $1.61 trillion.
Cutting down on your car insurance costs can save you cash on your car-related expenses. Comparing multiple insurance quotes can potentially save you hundreds of dollars per year. Visit Credible now to compare quotes free of charge.
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Auto insurance rates continue to go up
On top of high-cost loans, drivers are watching their auto insurance rates increase steadily as well.
The motor vehicle insurance index, tracked by the U.S. Bureau of Labor Statistics, increased by 1.5% in December 2023. The month before, it also rose by 1%. Over the entire course of 2023, the index rose by 20.3%.
Insurance costs are rising due to several factors — mainly inflation, supply chain issues and an increase in accidents.
COVID-19 has caused rising inflation over the last few years, causing the price of repairs to rise. Tack on supply chain issues due to labor shortages, and repair costs rise even higher.
When customers make claims and require these costly repairs, insurers pass on the cost in the form of higher monthly premiums, State Farm explains.
COVID also led to fewer drivers on the road, but now that more people have returned to work, accidents have increased. About 56% of drivers use video chat or record videos. This has led to an increase in accidents, which leads to an increase in claims.
Additionally, more than half of the respondents from another State Farm survey admitted to reading or sending texts while driving, also adding to the increase in accidents.
Already have good car insurance but want to make sure you are alerted when you can get a better deal? Credible can send you free quotes if they find you a better rate.
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