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Americans swimming in debt are walking away from houses, and some are also having to give back the car keys. Auto loan delinquency is on the rise in the United States. It's good news for the repo man, bad news for everybody else, and it's our latest subject in this week conversations on debt.

We've contacted Philip Reed. He's a consumer advice specialist for the automotive information Web site, Edmunds.com. Welcome to the program.

Mr. PHILIP REED (Edmunds.com): Good to be with you.

INSKEEP: How does the car mess compare to the mortgage mess?

Mr. REED: Well, car delinquencies, auto loans delinquencies, are at a 17-year high right now, and most consumers are carrying much more debt for their car than even before. We estimate that nearly a quarter of those people are upside down in their car loans.

INSKEEP: Does that man the same thing as being upside down in a mortgage? The car is worth less than what you owe on it?

Mr. REED: That's right. And it also means that these people don't have much flexibility. In other words, they can't even walk away from the loan. They have to actually pay to get free of the debt that they have.

INSKEEP: Although we should mention, isn't it normal with a car loan that you're upside down as soon as you drive a new car off the lot? It's worth less than when you bought it?

Mr. REED: Well, this is - you know, sometimes the advice our fathers gave us was right. And generally what we were told was if you put 20 percent down when you purchase a car, you'll never be upside down. The problem is, is that people are looking for higher and higher-end vehicles. People are buying more car when they're younger.

So as a result they're putting less down, they're keeping that money so that they can make car payments. So there has been a trend to being more upside down than ever before.

INSKEEP: And has there been a trend among auto lenders to offer better and better terms to riskier and riskier clients?

Mr. REED: Well, you need to use that term better advisedly. The cost of a car has risen in relationship to most people's earning power. As a result, the captive financing arms of manufacturers and...

INSKEEP: In other words, the financing companies that they themselves own.

Mr. REED: Yes, that's right. That arm of the auto manufacturers have struggled to find ways to keep putting people in cars so they've had to become more creative. Part of what they've done is they've gone more towards leasing. They've also extended the terms of the loans quite a bit.

INSKEEP: I'm remembering right after 9/11 there were a lot of zero percent financing deals that I think were seen as almost patriotic at the time, keeping the economy going.

Mr. REED: Well, there is something patriotic. We're kind of actually encouraged to buy vehicles, to finance vehicles, to get more car than we need as kind of a patriotic move to keep the economy going. Because the sale of automobiles is so important to the economy. It's an indicator that most financial experts look to.

INSKEEP: But that leads to the next question: are we getting close to some kind of crash in the auto loan market the way we've had in the mortgage market?

Mr. REED: Actually, nothing has really changed in the auto loan market. They've been doing these kinds of things for years. But the crash in the real estate has sort of thrown a lot of emphasis on the people that are trying to keep up with their payments. My personal opinion is that there have been a lot of problems and abuses for quite a long time. Now with the problems in real estate, it's kind of highlighting and emphasizing those problems.

INSKEEP: I'm remembering the last time that I bought a car, I ended up in an office with a guy and he starts asking me about financing and it gets, ended up being a very high-pressure kind of annoying situation. But the guy's trying to sell me a loan as well as sell me a car. Is that the way it works for most people?

Mr. REED: Yes. You go into the finance and insurance office, which is called F&I, and essentially you already believe that you've bought the car and you know all of the terms. But it's at this point that they begin to sell you extra products. They also begin to work on your loan. They may have a credit application already, but if you're not on your toes, they can actually inflate the interest rate at that point and you can wind up paying quite a bit more than you should be paying.

INSKEEP: Really? Is this the point at which a lot of Americans who are in trouble now got in trouble, even though they didn't realize it at the time?

Mr. REED: The people that are victimized are people that have some problems with their credit rating. So they go into the F&I room and the finance officer says, you know, we both know you've had a few problems but you're nice people so I'm going to take care of you. And it's right at that point that they begin to raise the interest rate.

Say you qualify for six percent - they may sell it to you at eight or nine percent. So they're making quite a bit of money on you over the term of the loan.

INSKEEP: It's like the guy's almost the good cop and the bad cop. He's telling you you're no good but then offering you a deal that's not really a deal.

Mr. REED: That's a good way to put it. The thing is, is that people feel very vulnerable about their finances and if there's been a little bit of a problem they magnify it. Even though it may not have actually had any kind of an impact at all on their credit rating.

INSKEEP: You ever been in trouble on a car loan?

Mr. REED: No, I haven't. I've been in trouble on other things so I know a little bit what it's like to get calls and how the tendency is to avoid dealing with the situation, which is the problem that's facing most people right now, is that they don't want to answer the phone, they don't want to open the mail. They don't want to confront the problem that's in front of them, and that's a very negative situation to be in.

INSKEEP: And do you think for most people it is possible to confront the problem?

Mr. REED: Yes. They probably have a few more options than they realize, and of course one of them is selling the vehicle itself. There have been a number of people that have moved from, for example, a rather large SUV with a high loan, they've sold it off. Hopefully they had a little equity. They took that equity and put it down on a car that still got them back and forth to work and accomplished all the tasks they needed but was at a much more reasonable loan terms for them.

INSKEEP: Would you recommend that even if somebody is upside down, as you said, meaning they sell the car, they've still got a little bit to pay on the loan even after they apply the sale price to the loan?

Mr. REED: Yes. I think that people do need to be much more realistic about the vehicle that they buy and what they are willing to pay for it. It really begins with, first of all, deciding what you're going to be able to afford. People have been sold the American dream, which is a beautiful, sexy, hot car that's going to make everybody envy them. And now they're sort of paying the price for making a poor decision.

INSKEEP: Philip Reed is consumer advice specialist for Edmunds.com. Thanks very much.

Mr. REED: Thank you, Steve.

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