FINANCE 

Nearly 3 million people can’t pay their car loans. Here’s what to do if you’re one of them

We all do. Yes, you. I know you have a loan on your ride, too. Even if you’re not in dire straits, every year that passes gives you a little less chance of being able to catch up.

“When Can I Afford to Trade in or Pay Off My Car Loan?”

You can’t afford to buy a new car, so you want to trade in your older car to save money on your loan. Well, according to the estimates I cited, people who are struggling to make their monthly car payments can’t afford to trade in or pay off a car loan. In the first quarter of this year, nearly three million consumers were in this situation, according to the Federal Reserve Bank of New York. That’s 10 percent of the market.

That’s a lot of borrowers who want out, and a big worry for the U.S. auto industry.

Unfortunately, “when” is not necessarily “now.” Even if you’re cash-rich, buying a new car is a big purchase. It usually takes about a year to pay for the sticker price. And even after a year, I’m still not sure how well I would have felt about paying off that old cash register.

Instead, the “when” is likely to be “when I get a raise.” Or something else. Maybe it’s “when my son graduates from college.” Or “when I retire.”

I don’t mean to sound glib. I am a great believer in free market theory — even the “when” of it. In this case, of course, the times are changing. When the job market was flush, such speculations were often safer. And so was the economy.

We may have entered a period of structural change, with a job market less able to handle wrenching changes — such as the ways that the Trump tax cuts have disrupted investment and hiring behavior.

But even when a job market like that is available, you shouldn’t think that the market is tilted in your favor. A “job” may not be available at all. Lots of people have car loans right now, and it’s far from clear that they’ll get their payments cut until 2020 or 2021.

If you’re in trouble, what can you do?

Stop. Tell your auto lender that you’re unable to pay your car loan. That way you’ll need to pay a lot more interest and can make your repayment more easily.

That way you’ll get some certainty on the terms of your loan. If you’re worrying about a higher interest rate, you may not be able to save enough money to negate the added costs.

Start saving. Don’t worry that it’s hard to save a lot of money with today’s lousy returns. Just remember to save at least 20 percent of your income, because that’s the amount of money it takes to pay off your loan.

That may not seem like much, but consider how little the average person needs to save. And it’s worth considering now how much you’ll need in retirement. And so on. (I’m saying 20 percent of your income is good, not heroic.)

As with investments, simply saving more is better than spending less, because the more you spend you can spend more when interest rates recover. And so on. In general, the broader your savings, the better it is for your long-term financial situation. And because of today’s financial woes, saving more than you need isn’t as far from your means as it once was.

So don’t put off thinking about when you can afford to trade in your car, and whether you can afford to do so. The smaller a monthly cost, the better. And don’t settle for a subpar car or truck. Look for something a little better.

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