Consumer debt levels relative to income have remained stable since 2019, despite rising car prices, interest rates, and insurance costs.
Overview
Capital One Auto President Sanjiv Yajnik stated that consumer automotive debt levels relative to income have remained stable since 2019, despite rising car prices, interest rates, and insurance costs. He argued that consumers are being cautious and prioritizing vehicle payments.
Key Data Points
- Capital One Auto data shows median monthly car ownership payments increased from $390 in 2019 to $525 currently.
- The payment-to-income ratio has remained flat at approximately 10% since 2019.
- 80% of car purchasers who finance have payment-to-income ratios below 15%.
- To keep payments affordable, more consumers are taking longer loan terms.
"The consumer is being cautious. They're being responsible. This is a much healthier way to do things than the alternative, because it's not a discretionary spend." — Sanjiv Yajnik, Capital One Auto President
Contrasting Views
- Edmunds reports that roughly 26% of used vehicle purchases involving trade-ins had negative equity through April.
- Average negative equity for trade-ins was $5,105, a 35% increase from 2019.
- For new vehicle loans in Q1, 90.2% of negative-equity trade-in loans had terms of at least 72 months, and 43% extended to 84 months.
- Jessica Caldwell of Edmunds warned that longer loan terms slow equity-building and increase risk of negative equity on trade-in.
"As loan term lengths increase on average, the pace at which consumers make progress paying down their balance slows. If consumers then trade in their vehicle too soon for any reason, they are increasingly left holding more loan debt." — Jessica Caldwell, Edmunds