Millennials Don’t Borrow Car Loans
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UPDATED: Aug 23, 2013
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American car culture might be in trouble. Millennials just don’t share the car enthusiasm of previous generations.
Generation Y neither cares to borrow car loans nor does it think cars are a necessity for either their professional or social lives that are increasingly being defined by online connectivity.
Experts and Millennials shared with loans.org why this generation doesn’t borrow auto loans to buy cars.
A Millennial Makes a Point
John Michael Grafft, Director of Leasing Services for Prudential Rubloff Properties, said that as a 26-year-old married real estate broker, he would not use a car if he did not need one. But, for a man in his position, a car is needed for business appearances.
Grafft’s 10-year-old business car is paid off but at the cost of an $18,000 car loan. He’d rather not get that level of debt again, hence his hesitation to get a new vehicle. Plus, there is simply no need for him to get a new car since, as a Chicago dweller, he has ready access to public transportation.
“I could easily use the train or the bus,” said Grafft. “We have a mobile app that gives us real time transit times so preparing for public transit is a breeze… We can get everywhere we need to without [a car].”
Experts with a keen eye towards the now deflating Millennial auto market tend to agree with Grafft that the demand for cars from this young generation is downright miniscule.
Experts Examine Millennials
Gabriel Stempinski, author of It’s A Shareable Life, thinks that as a whole generation, Millennials are less interested in car ownership compared to previous generations. However, he attributes the reason as not being entirely due to the high cost of ownership during a recession.
“The overriding reason is a shift in perceived value,” he said. “Access has become more important than ownership.”
Stempinski pointed out that in today’s age of apps and share-based startups, people can always just use someone else’s car. Increasingly popular services like Relayrides and Wheelz readily provide on-demand peer-to-peer car rental services that are much more convenient and less expensive than traditional car rental companies. As a result, young and urban-based Millennials have affordable and quick access to a number of cars without needing to deal with the hassle of owning one.
Similarly, ridesharing services are also increasing in demand and public interest.
“When you live in a place where parking is particularly challenging it’s so much easier to request a Sidecar to pick you up and drop you off instead of driving yourself and dealing with parking,” he said. “This is particularly relevant in larger cities where the cost of parking your own car for two hours is often far more expensive than the round trip Lyft or Sidecar ride.”
Aiding this trend is that homes are less appealing to Millennials since most flock to the urban centers of the industry in which they work and as a result have short commutes. A car would simply be a frivolous purchase for most.
For Generation Y, car culture is also fading and losing its luster now that young adults value smartphones over owning high maintenance vehicles that depreciate in value.
Stempinski thinks that cars will remain a necessity for those that require transportation, yet the days of them being status symbols are gone as evident by car makers creating hybrids and new compact cars to cater to Millennials that drive little if at all.
Reggie Britt, President and CEO of Kwik Loan, attributes diminished car demand among Millennials to their preferences for socializing online, which of course only requires a computer or smartphone instead of an actual car.
He also posits that Gen Y is strongly pro-green and favors clean modes of public transportation that leaves less of an impact on the environment. Aside from that, Millennials are well aware of how little money may be left for them in the future.
“As college loan interest rates continue to rise and government-backed benefits like Medicare and Medicaid seem like less of a reality, Gen Y has to consider their funding and their potential income over the course of their lives extremely carefully,” said Britt.
Even eventual economic improvement won’t change this trend.
“Millennials, for one reason or another, would rather have high-end bikes and take public transportation than buy a car,” he said. “So even the Millennials that have jobs and can afford cars aren’t buying them anyway.”
Britt’s valid points clash with those of one financial expert who believes that Millennials, young and inexperienced with all of life’s eventualities, will drop this temporary abstinence from car ownership.
A Temporary Trend
Chuck Underwood, Founder of The Generational Imperative, said that the older half of Millennials who are aged 18 to 31 have delayed getting their drivers licenses, showing just how unimportant driving is to them compared to alternative options — at least for the moment.
But there is still a healthy corps of Millennials who need cars since they change jobs frequently. In fact, Underwood’s analysis of government data found that the average 26-year-old Millennial has already had seven employers. They are quite literally “job hoppers.”
Millennials aren’t entirely to blame for their lack of car interest since Underwood believes that so many of their eager-to-please parents drove them everywhere when they were under the driving age.
“But as we now pull out of the recession, and as Millennials age, they’re eager to live on their own, pay for their own cell phone instead of the family plan with the folks, pay for their own health insurance, and gain independence,” he said. “As they do this, they will need and want a car.”
Part of their desire for vehicles will carry the stipulation that they be both fuel-efficient and eco-friendly, as a good portion of Generation Y is interested in saving money and supporting environmentalism.
Underwood thinks that this interest in the planet’s well-being was brought about by the youth of most Millennials being in sync with the 1989 Exxon Valdez oil spill, and the beginning of discussions of climate change and global warming.
This contrasts to Generation X, which grew up feeling disempowered and disengaged, while Millennials feel that they can have a global impact on the world, much like how the Baby Boomers pushed the Civil Rights Movement, Women’s Movement, and Anti-War Movements forward. When children are repeatedly told that they can save the planet, they grow up into young adults who believe they can truly generate global change.
Despite the difficulty this generation presents to carmakers, Underwood has one more very real question that’s preventing him from believing this is a permanent trend.
“Now that the oldest Millennials are 31, and as they now marry and bear children, they want a car for this reason: If you have an infant child at home and you know that child sooner, rather than later, will need to get to a doctor or hospital swiftly, are you gonna wait at the bus stop or train station with your sick child in your arms?” he said.