A young Texan named Daniel Rivera is facing financial difficulties after taking out two car loans with high interest rates. Rivera, a 22-year-old auto technician from Lubbock, Texas, shared his story on Caleb Hammer’s YouTube series “Financial Audit” in July. He revealed that he had taken out a $19,042 loan with an interest rate of 13.06% for a 2016 Scion iM, and an additional $11,704 loan with an interest rate of 24.39% for a 2016 Ford Focus. Rivera admitted that he didn’t realize he was getting a bad deal until it was too late.
Rivera’s situation is unfortunately common among many Americans who struggle to make their monthly car loan payments. According to Bloomberg, the percentage of subprime auto borrowers who are at least 60 days past due on their loans has reached its highest rate in nearly three decades. This is partly due to the high cost of borrowing money, with average APRs for new and used vehicles reaching 7.4% and 11.4% respectively.
Rivera plans to refinance his auto loans to get a lower interest rate, but with over 80% of his $52,000 annual income going towards debts and living expenses, it will be a difficult task. He accumulated credit card debt, student loans, and borrowed money for work tools, which contributed to his high-interest debts.
The lack of savings and an emergency fund also poses a risk for Rivera, as any unexpected expenses could lead to delinquency or loan default. Financial expert Caleb Hammer advised Rivera to follow the Money Guy 20/3/8 car buying rule, which suggests paying 20% upfront, paying off the car in three years or less, and keeping the monthly car payment below 8% of one’s income.
Hammer also warned Rivera against buying a third car, particularly a Tesla, as it would only drive him further into debt. It’s important to pay off car loans as quickly as possible to save on interest and avoid negative equity. Falling behind on payments may require reaching out to the lender for extensions or refinancing options.
In conclusion, Rivera’s story serves as a cautionary tale about the dangers of high-interest car loans. By following sound financial advice and avoiding excessive debt, individuals can avoid being trapped by car loan payments and improve their financial health.
