Costly Auto Loans, Costs of Living
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UPDATED: Oct 18, 2012
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Banks are giving auto loans at the lowest interest rates in history since the Federal Reserve began monitoring them in 1971. In fact, rates have proven so attractive to prospective borrowers—even in a weak economy—that there was a 9.5 percent jump in car sales in September.
“There’s no question that the quantitative easing and the pressure on interest rates has helped the industry. It’s absolutely breathtaking to think about not just zero-for-60 programs, but just base interest rates. It’s insane,” said Paul Ballew, chief economist at Dun & Bradstreet, in an interview with Businessweek.
Interest rates and purchasing statistics are often covered in auto loan news. However, the cost of living and its connection to auto loans is not. While auto loan rates may be at their lowest point in history that does not mean that they are universally priced across the country. In fact, cost of living and geography can play a very important role in how much a borrower pays in interest for their auto loan.
Point in case, Miami, Florida.
According to the Huffington Post, Miamians pay almost $500 more for vehicle financing than the national average. Car loan debt in the Miami-Fort Lauderdale area was $16,411 versus the national average of $15,986.
The high cost of living in Miami plays a strong role in explaining why one city can pay so much more than the national average. The Credit Karma CEO, Kenneth Lin, believes that South Florida has a higher cost of living than most other parts of the country due to its affluence.
But this city isn’t plagued by just high auto loan debt. For example, Miami’s average home loan balance hovers at roughly $200,000, which is 19 percent more than the national average of $166,990, according to Credit Karma. Similarly, the area has 11 percent more student loan debt. Shockingly though, the Miami-Fort Lauderdale area has 14 percent lower credit card debt than the national average.
In the minds of many Miamians—and hopefully all Americans—credit cards are bad debt, carrying massively high interest rates and fees. However, auto loans—which grant borrowers the power of transportation—may be far less burdensome since they allow drivers to commute to schools, jobs, and interviews.
Fortunately for interested borrowers with poor credit scores, a car may still be within reach. B-tier buyers, or those with credit scores from 650 to 679, rose 26 percent this year while those with A-plus credit scores, which ranged from 790-999, rose 7 percent.
Borrowers and car purchasers who wish to avoid paying higher than the national average should take care about where they live and the cost of living within their city. The monthly debt payments required for financing, such as auto loans, can quickly add up. This can prove to be yet another cost on already burdened Americans who are struggling in our ailing economy.