Auto Loans

Where Millennials Owe the Most on Their Cars

The stereotypical millennial eats avocado toast and complains about student loans, but a recent LendingTree study found auto loans are significant debt drivers, too.

In fact, auto loans make up the second biggest share of millennial non-mortgage debt, according to a study on places where millennials carry the most debt. Our researchers next concentrated on that car debt, analyzing anonymous credit report data from My LendingTree users born between 1981 and 1996 and living in the 100 largest metros in the U.S.

The results, ranked by median balance, show where millennials are the most and least burdened by auto debt. Meanwhile, average loan terms, car prices and interest rates have been rising. If millennials, the soon-to-be largest generation, put off their next car purchase as a result of these things, it could mean a market shift.

Key findings

  • Even car loans are bigger in Texas. Metros in the Lone Star State dominate the top of the list: McAllen, Houston, El Paso and San Antonio have the highest median auto loan balances for millennials at $23,704, $20,925, $20,544 and $20,521 respectively.
  • Car capital of the world has the lowest auto debt. Ironically, Motor City has the lowest levels of millennial auto debt on our list with a median debt of $10,841 as well as the lowest average debt of $14,573.
  • Great Lakes area metros shine with the least auto debt. After Detroit, millennials in Rochester, N.Y., Grand Rapids, Toledo, Ohio, and Cleveland carry the lowest median auto debts, at $12,165, $12,429, $12,678 and $12,717 respectively.
  • New York and Ogden, Utah. These metros are on opposite ends of the spectrum when it comes to carrying any auto debt at all — New York has the lowest percentage of millennials with auto debt at 41.5% while Ogden, Utah has the highest percentage of millennials with auto debt (64.5%).

 

The top 5 places where millennials owe the most on their cars

In the sunny South, cars are gleaming with plenty of rays and this is where millennials have the most auto debt.

1. McAllen, Texas

Median balance: $23,704

Right on the border with Mexico, this mid-sized city is one of the poorest communities in the country. Its millennial generation takes the top tier for deep auto debt.

It’s not just tops — McAllen is a strong outlier. Millennials here have a median auto debt 13% higher than the No. 2 city on this list. And their average balance of $31,598 is shockingly high, $5,000 more than Houston. Kali McFadden, LendingTree’s senior research analyst who led the study, said “The big difference between median and average debt in McAllen suggests that millennials are buying more expensive cars, not just taking longer to pay them.”

2. Houston

Median balance: $20,925

The fourth-largest city in the U.S., Houston has a median balance significantly lower than McAllen. But it’s still relatively high, running neck and neck with the No. 3 city on our list,  topping El Paso by only 1.85% on median balance. Across the board, it also has high auto debt numbers, including an average auto loan balance of $26,471.

3. El Paso, Texas

Median balance: $20,544

El Paso is a 12-hour drive west of McAllen on the tri-border between Texas, New Mexico and Mexico. It’s the second mid-sized Texas city on the Mexican border to rank in the top three on this list. While its median balance is lower than Houston’s, its average balance ($27,010) is 2% higher.

Nicolas Ortiz, who worked as a dealership finance manager in Texas, says this might be in part because it’s not a strong part of the Hispanic immigrant culture to negotiate on price. “They consider it rude, and dealerships can make a killing,” he said.

4. San Antonio

Median balance: $20,521

The seventh-largest city in the U.S., with two huge Air Force bases, San Antonio also goes by the name “Military City.” Plenty of flags in the city are emblazoned with a picture of a cannon and the words “come and take it.” This type of culture might be a factor as to why San Antonio ranks high for auto debt, including a total average auto balance of $25,745.

Yet there isn’t a particularly steep step between San Antonio and No. 3 El Paso or even No. 5 Baton Rouge, La. El Paso beats San Antonio by only $23 in median auto balance. San Antonio’s median balance is about $400 more than Baton Rouge’s median balance.

5. Baton Rouge, La.

Median balance: $20,124

The only city in the top five that is not in Texas, Baton Rouge has the smallest population of the five cities with around 824,000 people. Its millennial population has only slightly lower balances than No.4 San Antonio in both median and average balances, the latter of which is $25,732, only $13 less.

On an interesting note, despite the smallest metro population, Baton Rouge has a relatively robust public transportation system: 29 bus routes to McAllen’s seven.

The top 5 places where millennials owe the least on their cars

The places in which millennials owe the least on their vehicles are also the places that feature prolonged and harsh winters. All five cities are in the Great Lakes area where plenty of ice and snow translate to plenty of salt on the roads that eat away at vehicle bodies.

100. Detroit

Median balance: $10,841

The place where millennials owe the least on their cars is Motor City itself, Detroit. It’s similar to McAllen in how much of an outlier it is. When you compare both extremes, Detroit’s median auto debt is less than half of McAllen’s. And compared with the runner-up for the lowest median balance, Detroit is 11% less than Rochester.

Motor City’s population of almost 4.3 million has a lower percentage of millennials than any other metro in the top or bottom tiers of this list at only 18.8%. The average balance is also the lowest out of all 100 metros at $14,573.

99. Rochester, N.Y.

Median balance: $12,165

Allan Jones, a native of Rochester who’s owned his Ford F-150 since 1997, said that most residents of the city don’t seem to be attentive to pristine car appearances. “The important thing is that it runs,” he said. Old car bodies “end up looking like lace, with pockets and holes from the salty wet eating them.”

With the second-lowest median balance, about 60% of millennials in Rochester have a higher average balance of $15,962. That’s almost $1,400 more than No. 100 Detroit’s average balance and $1,006 more than No. 98 Grand Rapids. This suggests that when they do replace their vehicles, they do so with more expensive cars than those in Detroit or Grand Rapids.

98. Grand Rapids, Mich.

Median balance: $12,429

With a population a bit over a million, Grand Rapids is right by Lake Michigan. Its median balance isn’t significantly higher than No. 99 or or lower than No. 97, but its average auto balance is less than both by 5.5% and 6.3% respectively.

97. Toledo, Ohio

Median balance: $12,678

Toledo is an hour drive south of Detroit and looks out onto Lake Erie, falling well into the trend of cold, northern cities having low auto debt numbers. Along with a low median balance, Toledo’s millennials have an average auto balance of $15,825.

96. Cleveland

Median balance: $12,717

Cleveland also sits on the shore of Lake Erie and comes in with a median balance only $39 more than No. 97. Its average balance ($15,871) isn’t much greater either, at $46 more, a far shot from No. 1 McAllen’s average balance of $31,598.

Why Texas?

It seems the maxim “things are bigger in Texas” also applies to vehicle debt for millennials. To find out why Texas cities both large and medium took up the top spots, we looked at some larger data and cultural trends.

An expensive truck preference. More than 25% of all registered vehicles in Texas in December 2017 were privately owned, non-fleet trucks. Texas is the nation’s largest consumer of new trucks. And trucks aren’t cheap. Ford F-Series trucks sold at a national average transaction price of $46,600 per truck in September.

Texans prefer trucks to the point that the trucks, well, they like Texans back. Six manufacturers — GMC, RAM, Ford, Nissan, Chevy and Toyota — have all made special Texas-edition trucks.

A culture of bigger is better. Jose Tavarez is a car salesperson in San Antonio, where he’s worked in the auto business for 22 years. “Yes, of course, everything is bigger in Texas,” he said and laughed. “That is how Texans are.”

Tavarez explained that bigger vehicles are seen as more capable, tough and dependable. “People see vehicles as extensions of themselves,” he said, and in many cases, they want to be seen by others as impressive.

A lack of public transportation. A possible contributing factor to McAllen being such an outlier is that there are only seven bus routes for a metro population of 828,000. By comparison, No. 3 El Paso and No. 5 Baton Rouge have similar-sized populations with 65+ and 29 bus routes respectively.

By contrast, New York ranks as having one of the world’s best public transportation systems and has the lowest percentage of millennials who have auto debt at all (41.5%).

How Millennials can wrangle their auto debt

Make a payment every two weeks instead of monthly. This way you’re not paying anything more than you would every month; you’re just paying half of it early, which knocks down the amount you pay in interest. It works because your interest rate is just that — a rate based on time and how much you owe. The interest rate is not a set amount of what you have to pay. So if you pay early, you’ll end up paying a lower amount of interest.

Make extra payments toward the principal. By doing this, you are paying more than you usually would in a month, but you’re only doing it when you can afford it. If you pay off your loan early, you’ll pay less in total.

Consider refinancing. If your credit score has improved or you didn’t shop around for a car loan when you first got it, consider shopping around for refinancing. It does not hurt your credit to apply to multiple lenders any more than it does to apply to one lender, as long as you do the applications within a two-week window. Read more about how to refinance your car loan here.

Methodology

Using an anonymized sample of over 280,000 millennial My LendingTree users, researchers calculated the total auto debt obligations of millennials from their June 2018 credit reports. These results were then aggregated to the 100 largest metropolitan statistical areas to include the percentage of millennials who have auto debt and what the mean and medians are for them.  Millennials are defined as those born between 1981 and 1996.

My LendingTree is a free credit monitoring service available to everyone, regardless of their debt histories, or whether they’ve used LendingTree platforms to pursue loans. It currently has over 9 million active users.

 

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