One year ago, we reported on the alarming trend of 97 month loans for new car sales. It turns out that these have now been supplanted by a substantially longer term. Say hello to the 144 month loan.
TTAC has actually known about the 144 month loan for some time. As we discovered, certain fringe elements in the exotic car financing business have been offering these ultra-long terms, though with fairly stringent conditions (a high credit score and a substantial down payment).
Automotive News recounts the tale of one customer, a “business consultant” who financed a $300,000 Aston Martin on a 12 year loan
“…the Aston Martin buyer is a successful businessperson who made a hefty down payment, says a staffer at the Aston Martin dealership, who wished to remain anonymous. But stretching the amount financed over 144 months offered additional flexibility that the customer appreciated. And the buyer plans to pay the 12-year loan off early.”
Aside from the questionable judgement involved in financing any depreciating asset, let alone a fragile British exotic car, over a 12 year term, the sheer amount of time must be put in context. 12 years ago, the DB9 wasn’t even out yet. The Vanquish had barely been released. That period of time is an eternity in automotive terms – think about the difference between a 2002 Accord and a 2014 Accord – and by the time 2026 rolls around, the Aston in question will be a stale-looking money pit at best.
144-month financing? Please see the movie “12 Years a Slave”.
The only way I’d ever do this is if the car appreciated significantly in those twelve years.
Maybe that’s what he’s hoping for. But personally I agree that it’s simply not intelligent. Problem is, if it’s been done once, you can bet it will be done again, and we’ll see people who can’t afford such cars normally doing the same thing just to show off their ‘buying power’.
KYREE – YOUR COMMENT WAS BRILLIANT. So brilliant that I’ll be using that same comment on my Facebook update.
There is no way to keep people buying stuff if they can’t stretch out those payments. The way I see it, we are gonna end up having to have non-traditional loans to get the housing market rolling again. 40 YEAR and 50 YEAR sound good.
The real problem is that the interest rates are suppressed and the home values are inflated. My house in Queens cost me $250,000 when the morons who tried to hold out for $500,000 realized that they weren’t gonna get it as the market flipped on them after 2008.
In my opinion it should have only been $200,000 – due to the work I needed to put in.
As for CAR LOANS, the values on cheaper cars have dropped, but the values on decently equipped cars has risen beyond what people are willing to pay – so the used car market is on fire!
It’s sad to think that a 4% on a $30,000 car would cost you $469 a month with total interest of $3,793 paid over 72 months, but that same deal would now give the banks $7822 interest – even though you’d be paying $263 a month.
> The real problem is that the interest rates are suppressed and the home values are inflated.
> As for CAR LOANS, the values on cheaper cars have dropped
The interest rates at play here have little to do with what’s being purchased outside of the depreciation curve offsetting collateral value.
It’s just math, which is justifiably confusing to people bad at it.
My problem is having a lot of cash in the bank and collecting very little interest.
In the 80’s, I had $2000 collecting 10% interest. An extra $20 a month.
Now look…
There’s no incentive to save.
And don’t tell me about investing. I’ve build a marijuana portfolio along side my TESLA, Ford and Google.
Even made youtube videos: bigtruckseriesreview MARKETWATCH.
So far so good!
> My problem is having a lot of cash in the bank and collecting very little interest. There’s no incentive to save.
The incentive to save into an insured bank account or not has more to do with how interest tracks inflation, not interest per se.
Those concerned about how much that bank is making seemed to have figured out investing (ie loaning) on their own anyway. Bitching about inter-bank overnight rates has almost nothing to do with this.
> Even made youtube videos: bigtruckseriesreview MARKETWATCH.
Srsly. No.
Your posts often read like you have quite the marijuana “portfolio”. I am not shocked.
I’d say you have a substantial marijuana portfolio, but that would mean your posts would become entertaining.
Well said!
If you need more than three years to pay off a loan, you can’t afford it.
Unless it’s a house.
With cars lasting well over 100,000 miles and many making it 200,000 miles or more cars don’t turn to dust anymore after 3 years so this seems overly conservative.
Obviously everyone is free to make their own financial decisions but taking out a loan for more than 36 months isn’t necessarily going to put you in the poor house.
The thought of spending thousands of dollars to take my family to Disney for a week makes me physically ill knowing that a week later it feels like it never happened but I’ll gladly pay more for a car that we will use daily. If it costs a little more to gain some more enjoyment then I’ll write the check for a few more months.
That, plus you spend most of your Disney week either sleeping or waiting in line. Been to Disney twice, hope not to have to go back again.
Maybe the best comment ever.
holy rock-throwers, Batman!
Odds are the buyer is not a middle-class working stiff with a $120k annual income. It’s somebody with liquidity to buy the car outright, preferring to maintain an extra $200k of dry capital for investments with better returns. Pontificate on the appropriate risk appetite for a rich stranger all you want.
One could make the argument it’s similarly insane to pay off a mortgage in 360 months…..which for a good chunk of society means **never** pay a house off.
So what makes more sense? Never paying your house off? Or paying off a collectors toy {important — likely not a daily commuter} in 144 months?
This. Depending on the interest rate on the loan the buyer is probably making money by not buying outright. Unless you are getting stiffed by some ridiculous rate, it’s not that hard to beat the interest rate on most bank loans these days.
That said, if this guy did have the kind of money to actually pay cash for the car, it seems odd that he would be dealing with Aston Martin’s financing arm and not his personal bank (i.e., borrowing against cash and cash equivalents to get a better interest rate).
+1
People with no chips to play with won’t understand this.
WSN,
I considered that as well as leasebacks and thought about any other potential income/tax advantages. Given a rate of about 7% for a 144 month loan, I will leave it those with better chip acumen to find the investments that will return greater than 7% consistently over 12 years after fees and taxes.
There are very, very few cars I could even see having for 12 years (regardless the payments or cost).
a Brand new W222, Model S, a brand new A8, RS7, LS460, or some other exotic/ expensive car that holds its looks for 10 year cycles.
Ahhhh, yes, the old “I am guaranteed to get a higher return on this alternative investment, so I’ll borrow money at a rate lower than my opportunity cost” two-step.
That’s never burned anyone in history.
/s
Nope, @deadweight. Not a guaranteed return. But able and willing to take the risk. For some people investing $1,000 a month in a 401k isn’t exciting enough.
If this buyer entered into this loan 12 months ago and invested the cash in a sleepy S&P500 index fund, he/she would have made 30%+ in a year.
If you have the liquid assets to pay off the note, as is the assumption here, then it’s hardly the same thing.
I just looked up a barely-remembered news article from last year — Mark Zuckerberg took out a $5.95M ARM at 1.05%. Same deal.
That’s an ARM – as in Adjustable Rate Mortgage. Backed by security that’s not going anywhere and at a rate that will increase if money market conditions demand it.
Our wannabe James Bond isn’t getting that kind of loan on this, especially if he’s going through A-M financing.
Id go 144 months and pump the savings into GM stock!
I have chips, and I understand this: It’s outright stupidity.
‘Dry’ capital? Don’t you mean ‘wet’–as in liquid–capital?
“a middle-class working stiff with a $120k annual income.”
If you make $120,000/year you’re comfortably within the top 20% — maybe top 10%, I haven’t seen the numbers lately — for income.
The median household income in the U.S. is in the low-mid 50s.
You’re in the top 6.5% at $134,000 household income & in the top 10% at $113,000.
You’re in the top 25% at $68,000, and believe it or not, in the top 50% at $34,000 or greater.
These are from 2010’s SUMMARY OF FEDERAL INDIVIDUAL INCOME TAX DATA, but I doubt the data has shifted considerably in 3 years.
http://www.financialsamurai.com/how-much-money-do-the-top-income-earners-make-percent/
Yes, 120k/yr is not a “working stiff,” it’s a “wealthy executive.”
If you live in the sticks, don’t have to save for retirement or your kids’ college, have decent insurance, don’t mind renting, then yeah, it’s great. Otherwise, not so much.
And I won’t bother trying to explain, yet again, the difference between income and wealth. Ugh.
I live in a midwest city, am saving for retirement, have insurance, and own a home, am accumulating wealth.
<50k/yr.
For cost of living purposes, most Midwestern cities count as the sticks. That $50K buys a lot less within an hour’s commute of Chicago.
Also, assuming that’s mostly employment income, you’re benefiting from fairly substantial government subsidization.
The only government assisted thing I have is an FHA mortgage, which wasn’t really an APR discount from a regular one when I bought in, early 2012. It did help me to not need a giant down payment.
Evvvverything else I pay for myself.
Last year, the federal government took in roughly $24K per household and spent $30K. If you’re not paying at least that much, then someone else is covering your share.
Ok, only people who make $250K+ and live in downtown Chicago are pulling their weight and are anything but lower class. Got it.
Funny how we suddenly shot from $120K to $250K…
Hey, if you want to be oblivious and envious instead of actually taking a hard look at the numbers, be my guest. Plenty of people seem to be happy that way. Just don’t pretend you’re doing anything other than avoiding the problem.
What’s the problem I’m avoiding? I missed that somewhere. Who am I envious of? Missed that as well.
Don’t forget the condescension in your reply though, it’s tasty.
“Odds are the buyer is not a middle-class working stiff with a $120k annual income.”
vbofw, would have to say, what constituces ‘middle class’ depends on where you live. Down here in ‘occupied mexico’ (aka Central tX and points south), 50 to 60K makes you middle class. 120K would make you ‘freekin rich’ .
There’s 4-year degreed engineers here who won’t ever see 100K, but I’ve heard you can make 90K up in Jersey mowing lawns.
Sucks to live here in these wage-depressed states where big mfg likes to locate their factories. And I could always move, I know, but such is the life we choose.
> Aside from the questionable judgement involved in financing any depreciating asset
> The only way I’d ever do this is if the car appreciated significantly in those twelve years.
This common misconception doesn’t make any sense unless the buyer was somehow duped otherwise.
It absolutely makes sense to finance the *same* purchase for however long it takes as long as the opportunity cost of full payment is below that of interest terms.
The problem rather lies with people who use monthly payments as a guide and buy into far more depreciation than they can afford, but this is tangential to full-payment vs finance per se.
A lot of these loans have pre-payment penalties.
“And the buyer plans to pay the 12-year loan off early.”
Riiiiiiiiight. Suuure they do….
I won’t belabor a basic point with a long diatribe about financial suicide, so me merely add a post-haste:
Fake it ’till Upton make it!
I guarantee you the bank has major collateral if they’re making this kind of loan – maybe not in the car, but somewhere else.
“And the buyer plans to pay the 12-year loan off early.”
Riiiiiiiiight. Suuure they do….
I won’t belabor a basic point with a long diatribe about financial suicide, so me merely add a post-haste:
Fake it ’till you make it!
I struggle to think how insecure one muset be to willing to commit financial suicide.
A 300k Aston. With 60k down, at least where I live 24k of that 60k is sales tax, so in reality 36k in equity? Car would be worth what in five years, 100k maybe. Any Aston owner can feel free to help me on the resale part. So great news you comfortably owe 240k in five years on a car worth 100k. That seems like a brilliant decision for any entrepreneur.
I’d be genuinely surprised if the car is worth $75,000 in 5 years.
Depends on how much he drives it. In 25 years it may be worth a million–if it’s low, low mileage.
I can’t see any modern Aston being worth a million in 25 years.
An Aston Martin One-77? Maybe. A V8 Vantage? Probably not.
What’s it worth now? It’s already 10 years old, I’d think it would be around 100-150k.
Modern Astons of the PAG era and beyond lose their equity on a very rapid basis . For instance a five year old Vantage can be had now for less than half its original purchase price . And no modern car will hold its value over said period of time .. exotic or not . Some cars down the road will regain their equity and beyond upon being deemed ‘ Collector Cars ‘ . But thats only some .
As to the 144 month or even the 97 month financing [ not to mention all the Subprime Auto Loans being handed out of late ] in general I say ;
Hello Housing Bubble .. revisited now as the Auto Loan bubble … let the count down begin .. Five .. Four .. Three ….
Counterpoint – Ford GT.
Yeah, that was exactly what I was thinking. A Ford GT *would* have been one of the rare instances in which this was a good idea.
But you wouldn’t know that from the get-go and the Ford GT would appreciate in value whether you paid it off in 4 years or 12.
If you’d leased it, with an option to buy, you could have enjoyed it for 3 years, then read the tea leaves regarging its future worth and shelled out the money to buy it.
Fair enough. No one would have been able to reliably tell us that within ten years, the market value for a GT would be more than twice the original MSRP. It’s just obvious that your garden-variety Aston Martin or Bentley *isn’t* going to be one of those appreciating vehicles.
There are a very few cars in history where paying that sucker off over 12 years would have been, in hindsight, a brilliant financial move. The ’67 Shelby 247 Cobra and ’62 Ferrari 250 GTO come to mind.
But projecting such foresight into future automotive investments over 12 years would be daft at best, kinda like quitting school in 7th grade to become a rock star.
For every David Grohl there are several thousand Kenny Shields’. Who the hell is Kenny Shields, you ask? Exactly my point. (And the first joker on here to ask “who is David Grohl?” shall be publicly flogged).
What is a David Grohl? Seriously, some of us whippersnappers don’t listen to that classical music from the 60’s or 70’s; I think it’s called rock and or roll.
Now if you’ll excuse me, I have some Schooly D, Eric B, and Pete Rock & CL Smooth to listen to.
Of the Foo Fighters, which are most definitely not a 60’s/70’s band. I’ve heard very little of their stuff, so they must be new-ish. My musical knowledge ends in about 1993, which is coincidentally the same year I was born. Current favorite genres are singer-songwriter (although the slightly less radio-heavy stuff, like Jackson Browne) and lush, indulgent progressive rock (most of which is seldom heard on the radio anyway).
Foo Fighters were formed in 1994 so they have been around for awhile As an old hippy from the 60-70s I kind of like them.
Based on the time frame of the hip-hop artists/groups you listen to, I would assume that you were at least aware of the band Nirvana. Dave Grohl happened to play drums for that band.
Ah yes, that is a reference I do understand. I literally have no idea who does what in rock and roll.
Hey, big Streetheart shout-out!
> But projecting such foresight into future automotive investments over 12 years would be daft at best, kinda like quitting school in 7th grade to become a rock star.
People choosing longer terms aren’t “investing” at all, but rather either spreading out the opportunity cost (the smart reason) or getting into assets they shouldn’t be (the dumb reason).
Even with houses generally the market pretty much tracks inflation, though too many dummies believing otherwise always has a habit of skewing reality.
The conservations on this among those who don’t understand how math works are pretty ridiculous.
Your analogy suggests that Kenny Shields is some kind of loser compared to Grohl. Maybe he’s not as big as Grohl, but he’s spent a lifetime as an accomplished rock musician, hardly a loser
I did a similar loan, albeit at a much smaller scale, where I had low payments and planned on paying it off early. It removed the pressure of a high payment, allowed me to spend money on some other projects and when able pay off the principal. Still I think if I had the money to blow on cars like this Aston I’d just lease them and get a new one every year or so.
The overwhelming odds are that the buyer downs’t have the money “to blow” (literally) on this Aston Martin, which is the rub.
Think of the horror that awaits them when the warranty runs out (though it most likely will be repossessed by then, anyway).
Without heavy duty collateral, no bank is going to hand someone $300,000 with only a car as security. I bet you’re 100% wrong – the guy is probably loaded beyond belief.
Funny, that is the same way with my mortgage. I realized that why pay it off early with such a low rate when I could just put the money in a IRA.
Good thing you can sleep, shower, $hit, shave, cook, relax, etc in your house.
Try to do that out of the rapidly depreciating Vantage.
Well, my guess is the down payment is what made this loan work. The key to this story is what was the down payment and the interest rate. If the rate was was under 3 % then why tie the money up in large value asset while you will likely always have equity due to the down payment.
Maybe a home equity loan for the down payment…
$hitting in the Vantage will have a negative impact on resale value.
This is one more example of why the gov needs to impose strict new regulations on the financial sector. Seems like no one has learned anything from 2008. Oh, you Ayn Rand fan-boiz can go to hell before you start typing.
Hell was privatized several years ago; I believe Raytheon or Lockheed runs it now. You need key card access to enter nowadays.
That made my morning, thanks for the up lifting thought, I thought hell was taken over by telemarketers , know I can sleep at night.
Damn that’s no good, I’d planned on riding an express elevator right on down choking one bastard in particular then spending the rest of eternity continuing that choking.
A key card implies a back-ground check and advanced education to even get a foot in the door, guess no Hell for me…
The counter is that the market is rather fickle and market values of cars do not reflect utility values. Frankly if someone doesn’t drive the vehicle much there will be life left after 12 year. There are plenty of low mile 12 year old cars, and they aren’t worth much on the market, but they will get around just fine. I have a 20 year old $600 minivan that is damn near depreciation proof. Perhaps your government involvement solution would be better applied in forcing people to just keep the usable cars they have longer.
Further, we don’t know the conditions of the loan. If the equity doesn’t ever fall below expected values then, from the banks perspective, it’s still a good value for them. Balanced with the good credit of the customer. You’re trying to wrap an entire market up in one example that you don’t know all the variables on. I also doubt that this customer was one of the sub-prime mortgage holders who couldn’t afford their house…
Exactly. And the sub prime lenders weren’t betting on the borrowers – they were betting on things like derivatives and credit swaps, all dependent on housing prices continuing upwards. If you lent $500,000 on a $600,000 house that was $750,000 a year later, who cared if the borrowers defaulted? You made money on the default two ways: 1) on the credit swaps, and 2) on reselling the house. Of course, it also depended on 3) conning the other party in the swap into believing the mortgage was investment-grade.
So, the subprime lenders did what they did for a simple reason: to keep housing prices going up. The increase in prices mitigated their risk.
Problem is, prices had to level off, and the moment that this began, the whole s**thouse came down in very short order.
> So, the subprime lenders did what they did for a simple reason: to keep housing prices going up. The increase in prices mitigated their risk.
Technically the scheme of CDO’s or CDS (insurance, essentially) which trade individual risk for systemic risk are predicated on lack of systemic failures, so in theory they can work in a stable environment.
The problem was that people got greedy as they inevitably do, which creates a cycle (ie up/down) these schemes cannot survive by design.
This is all very easy math/logic, but frankly it’s obviously why it’s never offered for discussion even to people who can do basic thinking.
@skor…I live in Canada, we have all kinds of regulations on the financial sector. We also have all kinds of people over their head in debt.
All you need is a secured line of credit, on your property. After that your house becomes an ATM. You want a 50K truck? Just write a check. Prime plus a half. You spread that truck over 20 years.
If you max your Visa? Just pay it off with your line of credit. That way you can amortize the gas your truck uses, over 20 years.
I’m sure glad that big brother has put regulations in place. With out them Canadians might just do stupid things.
Oh yeah I forgot…Ya just can’t fix stupid!
“All you need is a secured line of credit, on your property. After that your house becomes an ATM.”
A Home Equity Line of Credit can be a great tool.
Why would I borrow from a bank when I have a house that’s paid off that I can borrow against and pay back anytime without penalty? At prime plus a half, it’s still cheaper than most mortgage rates.
I can, and have…and have bought a couple of rental properties using HE LOC for the down payments. I save my liquid cash, and the rental income covers all costs…so these new income generating properties didn’t cost me anything out of pocket. And when I retire, I have another income stream or I can sell them for an additional infusion of cash to travel or whatever.
Like everything else, if you know how to utilize it properly, a Home Equity Line of Credit can be useful.
Last I checked, HELOCS are offered by banks, so you’re still “borrowing from a bank” if you use them.
you let me know when it isnt the buyers fault who accepted the loan conditions.
@skor, totally agree, the government should intervene to make it illegal to lend money to others, at terms that you personally deem risky.
Also should be illegal – investing in stocks (hey, you can lose money if you take the wrong side of a bet), gambling, etc. etc.
The world would be much safer for all.
Sorry, but if this doesn’t fit the definition of usury, I don’t’ know what does.
Skor, at this level of $, I would have to respectfully disagree. This is not a title loan transaction.
But I cannot see any advantages accruing to the lendee.
You don’t know the definition of usury, so relax.
Somehow, I don’t picture a wealthy man buying an Aston Martin with a weird loan as usury.
Old money or no money, I always say. Harumph.
(You’ll have to imagine me adjusting my monocle.)
Does Aston lease?
Seriously, if you’re going to buy this car and you’re the kind of person who can swing the payments but have cash flow problems (eg, because you’re never sure when Customs is going to go poking around a shipping container or two…) and want to reserve capital, why wouldn’t you either lease, or go through a bank?
+1000, just lease the thing, this makes no sense, but in truth the 97 month loan scares me more, we are closer to that being the norm for a large group of people, a semi rich dude taking a 144 month loan on a exotic will be small numbers so they only party to take a bath will be him and maybe his bank. That must be one Stephen King size payment book.
A “semi-rich or rich dude” wouldn’t take out a 97 or 144 month loan on this. A promoter type posing as “rich” with negative net worth would.
Again, doesn’t Aston lease?
I get the nouveau riche, status-symbol thing, but this is about the stupidest way to do it. Even with negative net worth you’d be insane to be stuck with a loan on a depreciating asset like this.
Ideally, you’d want Aston’s financing agency to own the asset, and then you’d write off the lease payments as part of whatever shady drugs-for-guns-for-hookers-for-Bitcoin business you’re involved in.
Never mind that you wouldn’t want your capos seeing you driving around in a 12-year-old Aston; you’d lease for three years, then get a new one, all the better to get the stains out of the leather.
The only reason I could see financing it making sense is if you had some reason to appear legit and want to sales tax…
I think the lease payment would be much, much higher than the loan payment. Deadweight earlier opined that the A-M wouldn’t be worth much in just 5 years and I agree, which suggests a pretty steep lease payment. For the lease, there must be a reckoning with the lessor and Aston would either be compelled to subvent the lease in some way (hugely, I think) or guarantee the resale in order to match the payment on a 12 year loan.
This way, I think, it’s all on the buyer.
Indeed.
I doubt this vehicle will be worth 100k after 5 years, but I’ll be generous for purposes of a simple example of how much a lease on this would have to cost using a 5 year residual of $125,000.
$175,000 ÷ 60 months (5 years) = $2916.66 just in depreciation each month (let’s round it up to $3,000).
That does not include interest cost factor the finance company would charge, or other such costs associated with leasing.
I doubt this could be leased by a finance company wishing to make any profit for less than $3,750 per month.
A 12 year note. Ha!
This made my morning.
I suppose idiots come from all socioeconomic backgrounds.
Maybe… just maybe… there is 144 month financing in the works- IF not available already- for us middle class folks.
And if this is not in the works already… some TTAC reader/finance company executive’s gears are now turning. I bet he’s already preparing his PowerPoint and writing notes for their next meeting.
“Tom- Tom. Listen to me… THIS is good…”
The only way this would make sense would be if the buyer is wealthy but illiquid, which is certainly the case for many wealthy people.
Indeed, there are many very wealthy people sitting on large assets that aren’t as easy to draw on as just selling off some stocks or bonds. He could have a minority share in a private family business worth $100 million, he could own 22 apartment buildings throwing off a few thousand a month in cash flow, he could be in finance sitting on a pile of restricted stock or stock options.
Crtiticising this guy’s choice in cars or financing arrangement without knowing anything about his assets or cash flow is just assinine.
Ed Bolean gets around, apparently.
I bought my 2001 T&C 12 years and two months ago, and I am still driving it! Dang, shoulda gone with the 12-year plan!
Only $178.99 a month for 12 years, Kind Sir!
Like a big fuzzy blanket. Makes you feel all warm and cozy.
*cough Sarcasm! cough cough*
Behind every bad loan is an even worse security, one that your pension fund is probably holding.
This loan is an anomaly as car loans go, but motor home loans go even longer on a routine basis. When my father was about 66, he and his wife bought a motor home on a 20 year loan. My father got cancer and died a couple years later. His wife couldn’t afford the motor home. It went back to the lender, sold for a fraction of what was owed. The RV cost them their entire savings.
I know several people with $100K+ motor homes. The cash drain must be outrageous. In at least one case, the motor home was certainly a big part of a bankruptcy.
My parents own a very small one (think Econoline conversion) and, even with the short distances they travel every day, the operating cost of driving a sedan and taking a decent hotel room would be less than the incremental operating cost of the thing. They’d have more hours in the day available, too, as setup and takedown sucks up a couple hours per day. Then there’s water and sewage management & fees… It rapidly adds up to “not pretty.”
But it’s a lifestyle like yachting; they go hang around with other motor-homers in glorified parking lots and believe they are living the good life.
There goes what’s left of my inheritance… phfffftt!
Don’t forget the “thrill” of cooking your own meals every day. I can do that at home, but I guess it’s somehow more fun in a motorhome.
Don’t knock it; if you get a nice one it is like taking a condo with you. No need to wave a black light around your hotel room to see what appears or think about what was done on your pillow the night before you got there. Do you want to use the same comforter that Jack B and his flame d’jour shared the prior night?
Buy high quality, be the 2nd or third owner and let somebody else take the depreciation hit.
Personally, I don’t believe in financing toys; if you can’t pay cash for a toy you should not own it. The story above tells you why.
My father yachts, he doesn’t even own a house anymore, he just lives on the sailboat. He’s left the United States and worked his way over to New Zealand right now. It’s 50ft, and cost less than his house did. The maintenance costs don’t seem to be too bad, I think his brother has spent more fixing his CL600 every year than my father has on the boat outside of the payment. Except on the rare occasion when he fills the fuel tanks up…Jesus Christ kids, 200 gallons of diesel, which last 7-8 months, but still. The depreciation on the boat seems pretty stable, it wasn’t new, and was well financed. He seems more worried about my lower back problems than he does his finances, so I dunno.
Luckily I’m an only child, but I do have the feeling that when he dies, his lawyer is going to hand me a shiny dime and tell me that everything is gone except for this. Sheesh…retired people.
This is also very common with boats. Which are a money sink hole that make cars look like a great investment. A buddy of mine is so far underwater on his now 6yo boat that it might as well be a submarine. $55K boat, 20 year loan. No down payment, in fact he put some negative equity from his last boat into this one. He’d like to sell it now, has a kid and a live-in baby Mama, but he is stuck with it. I don’t think it even made it into the water last year. The year before, it went in the water, and something expensive broke, so it came right out again.
boat [insert phonetic spelling here] n. “A hole in the water into which one pours money.”
Isn’t boat also an acronym for “break out another thousand”?
The infamous “boatbuck”. 1 Boatbuck = $100 for small boats, but = $1000 for boats that are larger, and/or made of wood, and/or primarily powered by sails.
I refuse to finance a car for longer than 48 months. 36 is preferred but my current ride is on a 48 month note at 1.9%. It’s a 2012 so it’s half mine at this point!
I don’t know where all these extra long loans are being originated. In my 7 years selling cars ending a couple months ago I only participated in 1 84 month loan, and that was a big deal at the time. Everything else was 72 months or less.
I’ll stick with my still pretty high 66-month loan, thanks.
If I were a lender, I’d be VERY suspicious of ANY applicant who wanted a loan with a term of greater than 48 months. At most.
That long a loan just screams DEADBEAT or WANNABE HIGH ROLLER to me.
A few 144 month loans for rich people toys that a luxury automaker would have a hard time selling otherwise is not a big deal.
Routine 72+ month loans to middle income people for mass market vehicles is a much more significant development, it involves far more money and lives.
And the rise of middle-income leasing. People who really should buy something inexpensive and hold it for a decade willingly put themselves on the Eternal Payments Merry-Go-Round. Not good.
This article is perfect click-bait. We have a person, whom we know little about, doing something that sounds vaguely stupid, but again we don’t have the details.
Perhaps all this guy ever wanted in life was an Aston? Maybe this is the last car he ever owns because he sat in it and decided this was for life? Maybe he’s one of those folks saddled with “only suckers lease” or “a used car is just someone else’s problems” or some other well meaning financial advice. Again, we don’t know why this particular person decided to execute this particular transaction.
Most importantly, who the hell cares how this guy spends his money? This isn’t some poor schlub financing a Fusion for a decade, this is a guy finding a (albeit in my mind silly) way to buy a $300,000 car.
We do however know enough to feel smug and relate stories of our own financial acumen. Speaking of which, I drive a fully paid for, 2004 just barely above base Sienna that you will have to pry from my cold, dead hands.
I remember terms like this 40 years ago for general aviation, but many owners put the airplane on lease-back so there was some income generated.
And Skor, you cannot protect some people from themselves. This is not much different than people who serially date abusers and then wonder why they are abused.
Assuming the buyer put down $75k on the $300k loan, at 5% interest the monthly payments on $225k are $2081. That is about the same a locally advertised Bentley 36 month lease with MUCH less money down; it is very odd that this customer choose unusual financing to purchase instead of leasing.
Having done some finance deals I’m fairly confident the lender protected themselves pretty well through the underwriting stage and multiple people would have had to sign off on this loan. This didn’t “slip through the cracks.”
There is some reason the buyer chose (and a finance company or bank agreed to) a very unusual loan that we don’t know about.
An Aston? This makes about as much sense as financing a five star dinner.
Dan,
I believe that is called using a credit card. :)
He may be betting on increased inflation.
You guys haven’t been to a boat show in a while. 15 year loans are common. Sometimes you don’t even see the price of the boat, just the monthly payment and then underneath it in small print is the term. A few years ago I was looking at a bunch of Mastercrafts and they all had little info sheets touting the $299/mo, $349/mo, $399/mo, and then underneath in small print it says 180 month term!
Yes, 144 months is very common for a boat loan. Interest rates tend to be much higher than auto loans as well.
What are the two days when a boat owner is happiest?
The day he bought it.
And the day he sold it.
At least, that’s what I’ve heard.
That second day is the happier of the two.
Based on personal observation, that is definitely the truth.
Heh, B.O.A.T – Bust Out Another Thousand.
I’ll disagree because I paid under $1000 for my boat and to catch up on deferred maintinence. Fiberglass sail boats are the exception to the rule though.
Relatively inexpensive sailboats don’t count.
Agreed.
“If it flies, floats or ..,.”
I forget how that goes.
This is an outlier mostly because of the high price of the automobile being financed. It wouldn’t surprise me to learn that the borrower had $300k cash available but found an investment that returned more than the interest on the loan. Someone who did that five years ago and put his cash into a stock market index fund would have gotten his car for free.
I doubt that he can get that money for 12 years for less than 6%. He won’t get 6% in the market without some risk or tying up the money even longer.
Take a Twitter developer who makes $125k and is mostly paid in stock. The lockup period ends May 9 when he could cash out his $10 million. So, if wanted the car a little early (and the deal was made 6 months ago) then he might do the loan so he could have the car now and they pay it off once the lockup period ends.
I don’t that’s the case here. But, I could see it happening.
Wait, there are Twitter developers? What do they do exactly? Twitter has been the exact same thing since it came out. What are they developing?
The iPhone and anroid apps seem to get regularly upgraded.
They had to rewrite the infrastructure four or five times before it would scale.
They also developed the “Bootstrap” framework, which is something that I as a general web developer use for front-end stuff. For that I am eternally grateful, because it *significantly* decreases the amount of time that I spend per project.
I prefer to look at the situation another way: what was wrong with sub-$300k aspirational cars that this guy could have bought instead?
I would suspect that return on narcissistic supply was a prime consideration for what’s probably a Vanquish or DB9. I would have considered a gull wing SLS, SL550, or M6 if I were looking for a two door, and pocketed the difference. The only sub-$50k coupe I can think of that wouldn’t embarrass a consultant would be a Mini or Q60.
I’d rather buy a new Mitsubishi Mirage with the cash I have than I’d go for an Aston Martin with a 144 month financing!
Are you the same fellow who mentions the Mitsubishi Mirage in every other post?
I’m thinking you are.
Really like the Mirage, do ya?
Sorry to disapoint you, but I am certainly not the person you are holding me for.
I took the Mirage as a example because Mitsubishis seem to be the equivalent of a “cheap car” here on TTAC. I could have namend any other small car within the same price range: Opel Corsa, Ford Fiesta, VW Polo, VW Up, Seat Ibiza, Skoda Fabia, Fiat Punto etc.
Hang in there DW. I have a ’13 Ralliart bought new. It is a super fun car, for me anyway, and it came with discounts and 0% finance.
Hell Mitsubishi will probably give you a 144 month note on the Mirage with a job and a pulse.
If I had bad credit and needed wheels I’d take a couple of year old W-body Impala over a brand new Mitsubishi.
Live a little and spring for the Monte Carlo, baby!
I never buy cars on credit. As a matter of fact I never bought anything on credit in my hole life. I don’t have a credit card (which is not unusual for a German after all).
And an Impala is certainly not an alternative for somebody like me who is living in Germany. The price on gasoline savings alone on a small car would make this an absolute no-brainer.
After all an Impala would be as rare as an Rolls-Royce over here as GM never sold them in Europe. ;-)
Who keeps the same car for 12 years? In the car-buying world, there are three groups of buyers:
1.) People who buy/lease brand new cars and sell/turn them in after 3-4 years.
2.) People who buy CPO cars around 3-4 years old and drive them until they’re 7-10 years old.
3.) People who only buy 10+ year old cars and drive them into the ground.
No one…NO ONE who is a ‘new-car buyer’ gradually transforms into a 10+ ‘beater-buyer’ through the life of a car. Please prove me wrong.
Well, it’s a data point, obviously, but I think it may generally apply to the older generation: My parents buy their cars new and drive them until they fail catastrophically. The amount of time this takes varies based on the car, of course (1988 Legend – 374k mi; 2001 Saturn L300 – 133k miles), but that’s what they do, probably because it’s what their parents did.
Edit: They’re also in Texas, which removes rust from the equation, and their garaged, pampered, washed-weekly cars tend to look nice, even when they’re old.
They went from a Legend to a Saturn? Wow. From a best of an era car to worst of GM’s sins. My heartfelt condolences.
Every. Single. Mile. must have sucked.
My father.
1977 Plymouth voyager van bought new
1987 dodge van bought new ordered special with manual 4 speed. Little bro totaled at 199.9k on odo, dad was pissed as he wanted to roll 200k.
2000 dodge Dakota crew cab
He expired in 2012. In the 34 years I knew him he owned 3 cars.
I’m on the decade car cycle, and buy new.
1998 neon, 2008 PT Cruiser. I’ll likely have a 2018 200, a 2028 300– It isn’t that weird. They have about 175k on them and are perfectly serviceable vehicles at 10/175k
I’ll ne doing my 1st 10 hear vehicle cycle (now year 8) soon, but not because of economic reasons; with very few exceptions, most of the new cars I’ve test driven recently are not only not any better than the 1995 to 2006 generation vehicles, but in MOST cases, they’re worse.
The modern driving experience is now centered around vehicles loaded to the gills with electronic widgets & technology, much of which doesn’t enhance the driving experience (and detracts from it in many cases).
CVTs, DSGs, numb steering, dulled inputs, etc. – that’s becoming the new normal of the modern car, unfortunately.
I’m a little bit of all of the above. I bought my BMW wagon new and I see no reason that I won’t still have it at 10-11 years old. I only put 10K a year on it. I’ve bought well used cars and kept them for 3-4 years. I did this with my Range Rover – 12yo when I got it, I’ll keep it until something really expensive breaks and get another one just like it. I have one car I have had for nearly 20 years, and will probably have for the rest of my life. My Abarth that I bought new last year I bought knowing it was just a toy and would get traded for something else in 2-3 years.
There is not a snowball’s chance that this guy is going to keep the loan for the full 12 years though. He will pay it off or get rid of the car. It’s just an exaggerated version of my buying my BMW. I technically had the money, but it was making me money, so I took the loan. I did 60 months for added flexibility since the rate was the same as the shorter terms. But I will pay it off early, because my personal thing is payments or maintenance/repairs, never both on the same car. And I don’t do extended warranties.
What’s the interest rate? Opportunity cost? Assuming the well off buyer can actually afford the car, he may well be getting a good deal here. Why leave free money on the table? Without the rate and knowledge of what other things he is doing with the money we’re all just spouting trash.
It reminds me and the billions Larry Ellison borrows to buy things like the Rising Sun or the Hawian Island of Lanai.
The B&B would say that if you own (as Larry does) 1 billion shares of Oracle and you want to spend $500 million buying an entire Hawaiian island, you should just sell 13 millions shares.
Larry figures that, being intimately familiar with the inner workings of Oracle, it’s better to borrow and keep the stock.
My money is on Larry.
Say what you want, but it looks like that Bentley Falcon is closer to a reality then I ever imagined…
… retirement never really appealed to me anyway
I’ll take 12 year financing any day…. at 0% apr.
Interest: Those that understand it, earn it; those that don’t, pay it.
@ex007….That’s the truth.
I see this as a useful tool for a wealthy person to acquire an expensive car without liquidating investments. It’s only “alarming” if you imagine ma and pa financing an Aston Martin, using their farm as collateral and then getting into trouble when the thing depreciates more than they expected, which is pretty absurd. Although I’m sure it’s possible to use this tool unwisely. Far be it from me to underestimate the power of greed and stupidity.
> Although I’m sure it’s possible to use this tool unwisely. Far be it from me to underestimate the power of greed and stupidity.
Exactly. The people criticizing long loans or loans at all on “depreciating assets” or whatever are simply conflating dumb behavior with tools dummmies use.
The only relevance that has is APR increases when the (depreciating) asset by itself makes for poor collateral, but that’s not a flaw with math itself.
I’m not saying this is the case for this buyer, but in the past I’ve dealt with enough personal bankruptcies (and near bankruptcies) of folks that own exotic cars, mansions, and yachts that buying an Aston Martin on a 144 month loan raises an eyebrow.
I was going to make a wiseguy remark by just sticking with my credit union but checking their website they’ve just added 84 month auto loans $25,000 financed minimum. Although I noticed all their auto loan fiance rates have jumped 1% this quarter.
I don’t think the Vanquish will ever look old/tired, as it’s just too cool.
My last mortgage was only 120 months.
There is… and I will use a word I absolutely hate… ‘absolutely’ nothing to this post, but click bait through cheap and shameless manipulation of the ‘B&B’. B&B… LMAoff. In addition, it lacks any ‘Truth’.
But, the B&B is so easily manipulated, why not do it. Hell, it is just part of the business model, so anything goes.