Auto Debt Sucks. Here’s What We’re Doing About It.

Americans collectively owe around $1.2 trillion in auto debt — clocking in just barely behind what we owe for student loans and a chunk more than what we owe on our credit cards.

So why isn’t ballooning auto debt regarded as the scourge that its two comparable cousins are?

Student loan debt is the subject of hand-wringing all the way up to the federal level, where it’s a perennial legislative topic. And you’d be hard-pressed to get through a day without seeing credit card debt on a TV news segment or on a financial self-help site. Meanwhile, auto debt is just as pervasive and damaging as either of them — and is almost never mentioned in the same breath.

Don’t believe me? Google it. A quick search for “auto debt” brings up 1.9 million results, while a search for “student loan debt” yields 172 million pages. In other words, student loan debt gets more than 90 times the attention auto debt does, despite their almost identical scope.

What’s worse is that auto loans represent an even more insidious form of debt than credit cards or student loans because of their intractability. After all, most people in credit card debt at least have the latitude to transfer their balance to a card with a lower APR. And student loans do their owners the solid of deferring payments until they become legit wage earners. Auto loans, on the other hand, allow for almost no wiggle room, putting the risk solely on the consumer in a way that almost no other industry would dare.

How bad is the problem? This piece from “Last Week Tonight” piece pretty well lays it out, telling the tale of how a single car managed to wreck the lives of more than a dozen different buyers over the course of a few years like some kind of credit-killing Christine.

So why is finding a solution for our country’s out-of-control auto debt not more of a thing? Turns out, the reasons might be as psychological as they are systemic.

The Problem is Well-Disguised

One of the reasons we continue buying into a system of cyclical car debt is because the problem itself is hard to pin down. Fact is, extending consumer auto debt actually makes one’s car payments more affordable on a monthly basis — which makes auto debt feel less like a problem and more like a solution. And that’s why it’s become a favored strategy of auto financiers, some of whom are now putting drivers on the hook for payments for a single car for more than eight years.

In fact, by the end of 2017, the average loan for a new car in America hit a record average of 69 months , according to Experian, with terms on used-car loans clocking in at just over 64 months.

When you add the APR on these loans, it becomes hard for consumers to even get the sale price of a new vehicle down to its actual value — which means they’re paying more than the car’s initial worth, only to watch it consistently decline in value while they make payments on it — all the while putting themselves at risk of defaulting should they ever lose their ability to do so. Clearly, this situation is not working for the consumer, as 6.3 million people are 90 or more days behind on their loans and at immediate risk of repossession.

Compounding the problem of Americans being locked into unjustifiably long auto loans is the unstable nature of the modern job market where part-time jobs are fast becoming the norm and employers are asking workers to be more flexible than ever. In fact, more than a third of Americans are taking jobs in the gig economy, which lacks both the benefits and consistency of full-time employment. Like other Millennials, I’m not exempt from this; throughout my career, I’ve been a 1099 contractor more often than not. With tax filings, acquiring healthcare and adjusting on the fly with student loan payments all taking up a sizable chunk of time, the last thing gig workers want is to be locked into an auto loan for the better part of a decade. After all, it’s a tall order to make plans for eight weeks down the road, let alone eight years.

We Just Accept It

Another subconscious reason Americans might be willing to accept the unfairness of auto loans is that we simply tend not to question things that have been around a long time. Since the beginning of the auto industry, a loan has just been “the way” that those of us who don’t carry around $45,000 in a money clip buy a car.

And it certainly wouldn’t be the first less-than-stellar institution we as modern consumers accepted simply because it pre-dated us. Tetherball comes to mind. As do the dentist’s drill and the comedy of Rich Little. We don’t spend much time questioning these things. They have simply always been.

This stands in stark contrast to excessive credit-card debt and spiraling levels of outstanding student loans — both of which only became a “thing” in recent decades at a time of evolved consumer consciousness.

(Give some stats on the rise of credit-card and student-loan debt)

As decidedly modern phenomena, ballooning credit-card debt and student loans were both pretty immediately identified as major problems to be actively addressed. Our massive amount of auto debt on the other hand? Well, that’s just something we inherited, but never really questioned. Like aging playground equipment, we know it might represent a potential danger — but only to people who are using it recklessly, right? Actually, that couldn’t be more wrong.

Auto Loans: The McDonald’s of Debt

One reason auto debt has grown to such astronomical levels is purely strategic. Namely, the very smart people running the big auto finance companies are really, really good at their jobs.

(Use this section to track the growth of the auto finance industry — from the 1950s up until now. It’s insane. The auto finance industry is as big as auto retail. Just a few graphs and some numbers.)

To achieve this kind of growth, auto lenders aren’t intentionally targeting the irresponsible. They’re targeting everybody.

Unfortunately, an explosion like the one in auto finance has left countless casualties in its wake. Take the single mother in the Bronx who’s still making payments on a Mitsubishi — more than 10 years after it was repossessed.

“How am I still paying for a car I don’t have?” she asked the New York Times.

Or the 38-year-old Midwesterner, who recently got a new job but can only find a subprime auto loan equipped with a 25 percent APR.

“At the time I got it,” he told Jalopnik, “I did some numbers in my head, and I thought I could make it work. I thought it was a little high… but right now it’s the only place that’s willing to give me a chance to get a car. So I said, ‘I’ll make it work.’”

The used Dodge pickup he signed for was sold for many times its value, a not uncommon theme in the subprime auto world, where dealers can legally repossess and re-sell the same vehicle many times over to unsuspecting consumers. In one case, a subprime auto lender states as a matter of projection that is expects to repossess 35 percent of its vehicles. Meanwhile, others dole out annual percentage rates that are flat-out against the law.

Even Middle Class and well-to-do Americans are getting to know the repo man . I should know — I was one of them. (link to your article).

Having a Car Is Worth It

Perhaps the biggest qualification that needs to be made in the above examples is that all of the people featured in them took out their loans — even the insanely unfair ones — totally willingly. And that’s likely for a very simple reason: having a car is amazing, and people will do whatever is required of them financially to make that happen.

A car is the one possession that delivers endless single-serve parcels of self-expression, freedom, mobility, and fun. They’re literally our avatars to the outside world, as well as markers in our individual journeys. We get cars when good things happen in our lives. A graduation. A marriage. The birth of a child.

Bur cars are also incomparably practical. To have your own vehicle is to have a rolling lock-box that keeps your belongings safe. It’s to have access to a transporter that can connect you to loved ones via the most developed interstate system in the world. And if you’re a parent — especially of young children — substituting the convenience of your own car for any other solution is a total non-starter. Just try telling a mom to get her kids and all their stuff around town without having a car.

Unfortunately, the process that enables us to buy them has long since broken with reality. In what other context, would you borrow half of what you make in a year to purchase an item that will be worth a fraction of its current value in a few years and will just as quickly be technologically obsolete? And (oh, by the way) if you so much as fumble a payment or two during the five to seven years you’ve committed to paying it back, your credit gets wrecked.

That may sound awful, but it’s exactly how the auto industry has been asking us to pay for cars since they were invented.

So, What’s The Solution?

Remember when Listerine only came in the original version that looked and tasted like gasoline? Nobody really questioned it. For more than 100 years, that’s just what Listerine was: effective, beloved by grandparents, but objectively awful in every way. And then one day someone high up at Listerine woke from a panick-stricken fever dream, a single thought blaring in their brain: “Dear God, this product is terrible. We must fix this immediately!”

That’s pretty much how we at Fair feel about auto loans. And our mission is simple: to replace them with something better.

You shouldn’t have to borrow money to get a car. Even your non-nonsense, Listerine-loving grandpa would tell you only to borrow money for things that go up in value.

You shouldn’t have to commit to a car that’s become obsolete or that you no longer love driving. When another model comes out with so much as a slightly better nav interface, you should be free to GO GET THAT NAV.

You shouldn’t have to put your entire financial future at stake just because you need a set of wheels. If your situation changes, you should be able to walk away you’re your car whenever you want — with no penalties, threat of repossession, or knocks to your credit.

You shouldn’t have to spend the better part of a day at a dealership being financially probed in hopes of signing for car of your dreams. You should be able to get approved right on your phone and sign with your finger — the same way you order a pizza/pair of shoes/literally almost anything else.

We designed Fair to address all of the longstanding problems inherent to auto loans, which have long since lost step with the modern consumer. Just like Netflix provides an affordable, month-to-month alternative to a multi-year cable commitment, Fair lets you get the exact car you want right on your phone and walk away any time — with no long-term commitment.

We think getting a car should be easy, flexible and fun — so we created an entirely new way to do it completely on your terms.

To you, this may be common sense. To us, it’s just fair.