A Creeping Effect

Credit has a steady, cumulative effect on the way people buy things. The car industry is a good example of this creeping influence.

Through the 1960s, most Americans paid cash for their automobiles. If a person borrowed to buy a car, he or she would usually make a large down-payment (often half the purchase price) and take a one- or two-year secured loan through a local bank.

In the 1970s, auto makers decided to finance the purchase of their products in a systematic way. They marketed two- and three-year loans which required smaller down payments.

In the 1980s, car companies started leasing cars—which essentially eliminated the down payment and the whole idea of a car as a thing that someone would buy and keep for many years. It also made luxury cars more affordable to most consumers. At first, leases had two- to three-year terms. Traditional loans lengthened their standard terms to four or five years to compete.

By the early 2000s, most Americans financed most of their new car purchases. Gone were the days of 24-month auto loans; five-year loans or leases had become standard—and six-year loans were increasingly common.

So-called “luxury” vehicles—which included some trucks—had grown from less than 10 percent of the car market to more than 30 percent.

This is the cumulative effect of consumer debt: Higher prices and levels of luxury and less outright ownership. Some consumer advocates criticize this process as making a permanent debtor class; but others defend it as bringing the life-style of the wealthy to a mass market.

Whatever the sociological concerns, there’s no doubt that a credit economy requires an ordinary citizen to pay more attention to his or her ability to get credit.

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