Automobile Affordability a Mirage: Skyrocketing Auto Loan Rejections and Debt Levels Paint a Bleak Picture".

While the automobile bazaar finally sees more vehicles and balanced prices, acquiring a car remains an impossibility for many potential buyers. Here's the lowdown.

Even with an increased automotive availability and stable prices, a new challenge surfaces for hopeful car owners - obtaining necessary loans. Recent data suggests that a considerable portion of loan applicants - those wishing to take home a shiny new set of wheels - find themselves facing rejection due to high-interest rates and inflated borrowing costs.

This June, the Federal Reserve has reported a hike in auto loan rejection rates, reaching 14.2% from the earlier 9.1% in February. This rate is the highest since the inception of these data gatherings in 2013 and, for the first time, exceeds the application rate.

This situation has understandably triggered a retreat in lenders, who are acutely aware of the risk. Borrowers, struggling under the pressures of soaring inflation and escalating interest rates of the recent years, have amassed significant debts in a bid to sustain themselves. As consumer credit piles up, the threat of a default increases, particularly for auto financing. In a startling revelation by Edmunds, there are now a record 17% of Americans shelling out at least $1,000 per month on new loans in the quarter ending June.?

When faced with such enormous repayments, it’s not surprising that the auto loan performance has taken a nosedive. As per Cox Automotive, the severe delinquency rate in May was the worst since 2006, when records began. Defaults - loans that are over 90 days in arrears - rose to almost the same level as that in 2019.?

Seeing such a trend, it's time we took pause and evaluated the situation. Is this not what the Federal Reserve seeks to achieve – to rein in the rampant economic heating? It is mind-boggling to realize 17 percent of car buyers are burdened with a monthly payment of over $1,000 on car loans, not even on a house mortgage.?

Keep in mind, loan applicants are not the sole culprits here. Automobile dealerships and car lots ought to assume their portion of the blame too. They've been cranking up the pressure on potential car owners, pushing them towards this uphill battle against unsustainable debts.??

Okay, let's all pause for a moment, take a deep breath, and determine if we can bring some good old-fashioned common sense and elementary 4th grade math principles into play.

Let's begin with the fundamentals. As of 2022, the calculated average income in the US, as per GDP per capita, stood at $76,400. This represents the most recent and trustworthy figure available for income, so it makes sense for us to start our exploration from this point.??

Life: so full of ups and downs, it’s like a rollercoaster built by someone who really doesn’t like people. Not that it isn't a fun ride, it just sometimes seems to be designed for pure, echo-filled screams rather than leisurely enjoyment.?

Put salary into perspective. Let’s say you earn $76,400 a year – sounds impressive, right? Until you crunch the numbers. That computes to $6,366 per month before taxes. But don't start eyeing that yacht in the marina just yet. No, my friend, that big boy isn't in the horizon just yet.?

Suppose you have a $1,000 monthly car payment because you decided one late night, "Hey, I deserve to feel like James Bond every time I drive to the supermarket." Then, you have a $3,000 mortgage because once, while sipping your fourth espresso, you thought, "If I’m Bond, I need a Bond Lair." Now, as a Bond with a grocery shopping habit and high standards in lairs, you're spending 63% of your income on your car and home alone. Subtracted from your pretax earnings, and it’s like having a double martini and then realizing it’s non-alcoholic - a sobering experience.

Then the taxes come frolicking in, like uninvited trolls to the party, grinning manically and demanding 22% of the earnings. At this point, you're left with roughly the equivalent of a decent meal in an okay-is restaurant in Manhattan once tax season has had its way.?

The questionable notion here is, should the esteemed Mr. Bond be keeping a keen eye on the McDonald’s Dollar Menu??

Sure, the scenario seems alarmingly relatable. Days when the bus pass feels like a more feasible investment than the car payment, you know the financial rollercoaster has achieved its high, bloodcurdling point. But don’t forget, after every stomach-churning drop, there's a slow climb back up, wait, that’s the good part, isn’t it? Relativity, my dear Watson...err Bond, it’s all about relativity!??

Son, we live in a world with taxes and those taxes have to be guarded by men with calculators. Who's gonna do it? You? You, Mr. Bond? I have a greater responsibility than you can possibly fathom! You can't handle the truth! Because deep down, in places you don't talk about at parties, you want me

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