By Michael Wayland, CNBC
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Key Points
- The head of Capital One Auto, one of the nation’s largest auto finance lenders, told CNBC he isn’t overly concerned about rising consumer automotive debt and inflated used car prices leading to so-called “forever loans.”
- While median monthly car payments have jumped from $390 to $525 since 2019, data provided by Capital One Auto suggests vehicle costs have been stable compared with income.
- The lender found 80% of car purchasers who finance a vehicle are below the generally recognized payment to income threshold of 15%, even though they’re taking out longer loans to get to that goal.
The head of one of the nation’s largest auto finance lenders isn’t overly concerned about rising consumer automotive debt and inflated used car prices leading to longer loans on vehicle purchases.
His main reasoning? The percentage of income consumers are spending on their vehicles has remained relatively flat compared with 2019, before the coronavirus pandemic led to inflated pricing as demand surged but inventories stayed low.
“If I just told you, ‘Car prices going up, interest rates going up, insurance prices going up,’ you would say, ‘You know what, consumers must be paying more as a ratio to the income,’” Capital One
Auto President Sanjiv Yajnik told CNBC. “However, if you look at every quintile of salary and earnings of people, the payment-to-income ratio has remained fairly flat.”
While Capital One reports median monthly car ownership payments have jumped from $390 to $525 since 2019, data provided exclusively to CNBC from its automotive unit suggest that vehicle costs have stayed relatively stable compared with income. That’s because, overall, the payment-to-income ratio has remained flat at approximately 10% since 2019, according to the automotive arm of the American bank.
Capital One Auto found 80% of car purchasers who finance a vehicle are below the generally recognized payment to income threshold of 15%.
“The consumer is being cautious. They’re being responsible. This is a much healthier way to do things than the alternative, because it’s not a discretionary spend,” said Yajnik, referring to consumers prioritizing vehicle payments for transportation, including work.
To get to that goal, however, more consumers are taking on longer loans to keep payments affordable.