California Has a Car Debt Problem

Cities in California are facing sky-high inflation and a major housing market problem, but they may also be headed for a car debt crisis.

In 2023, the California Policy Lab found that about 8 million Californians owed on their auto loans, with an average debt of $24,900.

Read more: Compare the Best Auto Loan Refinance Lenders

On May 30, a new report from WalletHub ranked the cities where auto loan debt was increasing, with two California cities making the top five: Fremont at No. 3 and Chula Vista at No. 4. Another two California cities were included in the top 20: Anaheim and Bakersfield took the 14th and 15th spots, respectively.

Here is the list of top 10 cities with rising auto loan debt:

1. Winston-Salem, North Carolina
2. Scottsdale, Arizona
3. Fremont, California
4. Chula Vista, California
5. Miami, Florida
6. Glendale, Arizona
7. Lubbock, Texas
8. Atlanta, Georgia
9. Anchorage, Alaska
10. Colorado Springs, Colorado

In Fremont, the highest-ranking California city on the list, the average monthly auto loan payment was $559, WalletHub reported. The city's residents also had an average balance of $22,733, the fifth-highest in the country.

"California's exorbitant housing costs and overall high cost of living likely play a significant role in residents taking on larger car loans," Michael Ryan, a finance expert who runs michaelryanmoney.com, told Newsweek. "When everything else costs so much, your cash reserves are depleted, leaving car buyers with less money to put as a down payment."

WalletHub reported that the average auto loan in Fremont also increased by 1.9 percent between the fourth quarter of 2023 and the first quarter of 2024, marking the sixth-highest uptick in the country.

Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, said that for residents in the top cities, the rising auto loan debt might not be as much of a problem as the numbers would suggest.

"In some ways, the list is misleading, and in other ways, it's not," Beene told Newsweek. "Some of the top cities, Scottsdale and Fremont, may have seen a significant increase in the average amount of automobile debt, but the average income levels in those locations are higher than the nation average, and the odds are high that most who take on that debt can easily pay it back."

Beene said other cities, such as those in southeastern states, might be headed for more trouble, as incomes tend to be low and credit card debt is also skyrocketing.

"At the end of the day, it's bad for the long-term economic outlook of the person taking on that debt," Beene said. "Bigger and longer-lasting loan amounts ensure there's less money for that person not just to live on, but invest for their future. Car values may be on the rise, but that's not an excuse to go into a substantial amount of debt for what will be a depreciating asset."

Ryan also said, based on the list's rankings, that those living in the southeast might be experiencing deeper financial strains.

"Winston-Salem, NC, at the top of the list caught me off guard. Such a large increase in auto debt in this area could potentially indicate that residents are facing financial difficulties and resorting to larger loans," Ryan said. "Not out of choice, but out of necessity."

Those who find themselves with significant levels of car loan debt have various options, but making extra payments and setting up automatic payments are some of the quickest ways to clear your debt in the long run.

If you have good credit, you can also ask to refinance the terms of your loans.

"These loans become increasingly burdensome, leaving less disposable income for other expenses or savings," Ryan said. "If this trend continues, we may eventually witness a surge in delinquencies, defaults, and overall economic instability."