PALO ALTO, Calif. - There is relief available to many American consumers who are struggling to make payments on their cars.
Major banks and the finance arms of most automakers are deferring payments by as many four months on a case-by-case basis rather than repossessing cars and trucks.
"In light of new situations, everybody has to accept both their legal rights as well as what they want to do," said Stanford Graduate School of Business Professor Anat Admati.
The U.S. Federal Reserve reports that U.S. consumers have run up $1.2 trillion in auto loans. But, untold numbers of those consumers simply have no money to make the monthly payments due to the nationwide shutdown. The average American household with a car loan owes about $28,000.
In car loans and leases, a deal is a deal, subject to repossession. If a borrower stops paying, the lender has nearly all the power through economic and legal advantages in the contract.
"However, things have changed," said Admati.
For lenders, the change is brought about by the tidal wave of delinquent loans themselves, according to Admati.
"What are they going to do with it in the short, immediate term? Who is going to buy it and for how much?" said Admati. "So, everybody has to reassess the market again; the entire market."
One reason that defererd payments have become an option is because many vehicles have been purchased through loans and leases that last up to 84 months. Many of the cars are often worth less than the remaining outstanding payments.
"Whatever you thought the car would be worth in a booming economy is not the same as what it's worth in a recession-prone economy," said Amati.
Since most lenders are willing to help out, borrowers should take advantage of it by calling or going online.