Today’s Chart comes from J.D. Power, showing the growth of long term loans in the Canadian car market. While 96 month loans are just starting to hit American consumers, the 8 year loan terms have been present in the Great White North for some time. A friend was recently looking at a modestly equipped Big Three Pickup, which would be used for work. The truck, with an MSRP of $35,000 CAD (plus 13 percent sales tax), was offered at 96 months for 3.99%. That would have added up to $6,000 in interest payments over the loan term.
Faced with less disposable income and higher vehicle costs, the discourse in the Canadian market has gradually shifted to one where bi-weekly and even weekly payments have become the advertised norm, with 72, 84 and 96 month loans appearing as a fixture of the new and used vehicle marketplace. While the Honda Civic is still Canada’s best-selling passenger car (advertised at $39 per week), and Canadians opt for more modest choices overall, credit rating agencies are already sounding the alarm over the rapid expansion of auto loans to unworthy consumers, driven largely by Canada’s banking sector.
Sallie Mae was willing to let me continue paying $60 a month on $3000.
$50 to principal and 10 to interest.
I’d have been doing that for the next 50 – 60 months.
This morning I paid off my last student loan when my paycheck came in.
$986
I never have to speak to Sallie Mae (now known as NAVIENT) ever again.
Upper 1% & a $3,000 student loan? Does not compute
Have you seen the tuition bills from Hahvahd? Even the upper one percent need a little help from the government now and again. Thank God Morgan Stanley pays enough to keep him and Muffy in the style to which they are accustomed.
I went to an upper 1% institution as one of the poorest students there. The debt I obtained ultimately wasn’t worth it (price of a new mid sized Cadillac), and that was on top of what I paid them from my GI bill and tuition assistance…I make good money now, but I could have got out debt free going to the state university and gotten just as good an education. If I ever have kids, I’m going to strongly push going to the state school. Debt is slavery.
community college and a state school are 2 of the best deals around
Unless you, you know, actually want to get a job.
I wasn’t aware that public university graduates were unemployable.
I work with a lot of engineers from public institutions such as University of Michigan. They seem pretty employable to me. :)
Id rather get a technical degree from a state school than some $40K/yr artsy fartsy degree from some liberal arts commune… for employability/ROI at least, thats the best way to go.
sportyaccordy, funny you should mention that because my 25-yo grandson in Fallbrook, CA, got his Bachelors in History in May 2014 after 5 long years of study and now finds out that it is worthless because no High School is going to pay him the $70K+ he is getting paid now as a GS-11 civilian at Camp Pendlton, CA.
Ever since 10th grade he wanted to teach History and Social Studies at the High School level after a teacher lit a fire under him. He did his four years in the Marine Corps, got his History degree, only to find out that the civilian job he has now requires a Bachelors degree in Resource Management to get promoted to the GS-12 level, and higher.
Community College graduate and current state College student. Gainfully employed.
@highdesertcat
Suitably ironic.
Community college and a state university were two of the best decisions I ever made. Hated it at the time but I was able to put myself through school with no loans, and eventually get a masters on an employers dime.
I know far too many friends who have 50k+ in school debt, and those aren’t even from private schools. It has become a criminal racket. The feds are cracking down on the for-profit career schools, but that barely scratches the surface.
My variable rate loans from S&M dropped from 8% to 2.75% after the economy collapsed and have stayed there for years.
Ivy League is worthy IF you want to go into investment banking and take a chance. Investment bankers got fired on a regular basis and they aren’t always making big bucks.
Personally, I’d hire a student that got scholarship in ANY school and has good GPA or work experience.
I was in college at the time where they dropped the fixed loan (Stafford) subsidized rate (after my first year) and went to a variable, less subsidized one. So I had one college loan at 2.75% and three at 6.85%. If I were three years older, I would have been done with college repayment five years earlier.
Wow. Two-thirds of new car loans stretching out 6 years or more. I suppose there’s nothing wrong with it in theory – the cars themselves are good for 15 years if properly maintained.
But that’s the key, right? Taking care of the car. I worry for the consumer who stretches a loan 6+ years to get the payment low enough to be affordable. What happens in year 4 when they need new tires, brake pads and battery?
Sure, if you save just $25/month, you’ll be able to cover your maintenance costs. But how many do? Personal responsibility, I guess. A lesson too often learned the hard way.
Yeah, tell me about the hard way.
15 years of working shit jobs and never having any money made me absolutely paranoid about stuffing a savings account now that I have a good job.
I may not have ever lived in my car, but I’ve been days away from it a few times.
Never again.
I cant even imagine this… all of these folks are underwater for like 1/2 the loan term, amazing. I feel guilty thinking about 5 year loans, this is amazing.
The buyers’ spending power has been horrifically hollowed out, especially in most major Canadian cities. Between wage erosion and housing prices, very few people have the capital to buy a car and/or the wage to support a payment.
It’s worse the younger you get as the debt burden gets higher, earning potential drops and equity is nonexistent.
Things could be very bad for some time as a result; we’ve been content to mortgage the future to support the lifestyle of the present. Housing is the killer: home prices have gotten utterly unreasonable to support the enriching older homeowners. Cars are just a symptom.
This doesn’t really rationalize a 96 month loan though. If you can’t afford it you can’t afford it… and a 96 month loan on a car = you can’t afford it. Plus used cars are very robust these days… a 5 year old used car today is more reliable than a new car was ~15-20 years ago.
@sportyaccordly…Exactly…Lots a good deals out there for good used cars. It like the housing here in Ontario. The young people blame the boomers for the high prices.
The young folks with a 100k conbined income can’t swing a 4000 sq foot home in a nice neighborhood with a 650 k price tag.
Half of that cash will buy you a very nice well maintained older home, in a nice area.
They don’t want that.
“well maintained older home, in a nice area.”
When one comes up in the inner DC suburbs, it gets bought up in cash by developers and gets knocked down and in its place goes a 2 million dollar place.
Many in my age range would definitely give up on sq footage but that’s not what drives the bulk of costs in DC. location does.
Where the heck in Toronto can you buy a home for $350k? The average price in Toronto is over $650k and the housing stock is generally 30 years old or more.
Condos of 800 sq ft or less are going for over $300k.
Don’t blame the young people for ‘wanting more’. They can only buy what is available.
Your prices may exist in the boonies. Or the outer reaches of the GTA which due to traffic congestion will require commutes of about 90 minutes each way. Factor in gas, wear and tear (not to mention frustration and aggravation) and in a few years the ‘savings’ of living in the outskirts have been used up and your home has not appreciated to the same extent.
Last year we sold my late father in laws 55 year old, 950 sq ft Toronto home, in a not so great neighbourhood and requiring a minimum of $50k worth of work for nearly $375k. And the buyer now has it up for sale for over $475k.
As for used cars, the market here in Canada is quite different from that in the U.S.
Unless you can buy a used car for cash, it will cost you more for a used Toyota or Honda (3 years old or less) than a new one based on finance rates.
When you can get new car loans for Zero percent, yes your have negative equity for the first 4 years but unless you plan on selling it during that period you are ahead financially.
Thanks for bringing that up, mikey.
I’ve seen places on those House Hunters shows where some twentysomething couple in Toronto is said to be approved for a $600,000 mortgage for some three-bedroom bungalow.
For fuck’s sake – what’s a 26-year-old man doing for a living that a bank’ll OK him for two-thirds of a million dollars?
And is that seriously what Toronto real estate costs?
Used cars are still crazy expensive right now. I drive by car lots that are asking more then $6k on econo boxes that are more than ten years old. How does that make a good buying decision? Once you factor in the added up-keep, I don’t see the advantage, especially when you can usually get some decent rebates on a new car.
Art. Yes the situation is a little different here. I’m in the East end of theGTA $350 will by you a decent house. Two years ago that house would be 275. If you you car shop carefully, with a little objectivity 10-12k will buy you a good reliable vehicle…
As a parent and grandparent, I’m a little worried about the debt load these kids are taking on.
“Half of that cash will buy you a very nice well maintained older home, in a nice area.”
You obviously don’t know how real estate works. It is the land that worth the money, not the newness of the house. We have a lot of hole in the wall worth well over $1M because they can be torn down to be build into $2M house, while a few miles away you have $500k house because of the crime rate.
As a younger person (30) me and my cohorts who actuallt make decent salries are saving money waiting for the next crash we all know is coming. None of us are foolish enough to buy into ridiculously overpriced housing in socal. Once the boomers start to sell and quit buying, there won’t be anyone left to support this insanity.
a lot of those boomers are buying houses to rent out.
as long as the rental fees cover the mortgage and overhead theyre making money and dont really have to worry about selling
@SoCalMikester
“a lot of those boomers are buying houses to rent out.
as long as the rental fees cover the mortgage and overhead theyre making money and dont really have to worry about selling”
I underwrite mortgage loans, and I see the tax returns of “investment property” owners every day…so I can tell you that making money isn’t the point of buying a rental. You buy it to LOSE money, and write it off. That’s the whole point of buying them – the house appreciates in value while you pay less taxes.
Of course, if they get a renter like my ex, who trashes houses like the Who trashed hotel rooms, you wish you’d never heard the phrase “investment property.”
@FreedMike you are looking at tax returns not cash flow. They are losing money on taxes but making positive cash flow in reality since depreciation is what makes it a loss and that’s not an actual out of pocket expense (I owned a rental house for several years)
@Psar…” Housing prices have gotten utterly unreasonable to support enriching older home owners” Okay,I’m a an older Canadian, with a paid for home. Yes, my house is worth twice what I paid for it. What have I done to cause this?
Ok, I’ll bite.
Not only is it getting harder for young families to get on the property ladder, but it’s getting even harder to move up onto the second home since the middle market is increasing in value faster than the starter homes.
http://www.calgaryherald.com/homes/Getting+more+difficult+Canadians+move+starter+homes/10184796/story.html
In the past, the suburbs have been mopping up families willing to sacrifice a lengthy commute and lack of existing infrastructure for more square footage. But as cities like Edmonton and Calgary are beginning to realize, the increase in service costs is no longer offset by increased property tax revenue. Something has to give. That will mean either accepting lower prices for their existing homes, or more infill housing and high density zoning.
For myself, I’ve been shopping around for a house that meets our criteria, but nothing is even close to what we want to spend. So we’re starting renovations next year, since I can have more of what I want by spending $50k than I can buying another home for $200k more.
We’re taught not to save, and zero out the bank account at the end of the month. Especially with a guaranteed salary, government gig, etc.
Or it seems that way. My first home purchase was broken down fixer. Should’ve been torn down actually. People I knew, mostly peers, asked what I was doing there, and laughed when I told them I bought it. They didn’t mean to be rude, I guess. Natural reaction I suppose.
They probably were thinking it was a 30 year mortgage type. No, just a cash buy. It felt like the right thing to do. And it most definitely was.
This was 20+ years ago, (I’m mid 40’s now) and I sort of kept track of those that laughed. They went on to get an adjustable loan as the housing bubble started taking off. Most rent now, or something. I know many live with their aging parents.
I live in Toronto, and do a lot of work with tech startups, so I regularly see young people who are sacrificing today in order to build something for tomorrow. One thing they tend to have in common is that they want to live in the city and travel by bike/foot/transit. They don’t perceive car ownership as desirable or important.
Otherwise, though, I don’t see this hollowing out you describe. My wife (a real estate broker) deals with a lot of young people who have regular jobs and are prioritizing home ownership over car ownership, also because they want to live in the city and travel by bike/foot/transit – which is a revelation to us Boomers.
Maybe it’s something in the water, but times do appear to have changed.
My eldest moved from our suburban home to a downtown condo, so that she could walk to work. The entire building is full of under 30’s, all working, few with cars.
The building has limited parking and spots are changing hands for upwards of $25k.
Instead, I bought her a membership in a car sharing service. They have cars parked in the lot just down the street from her condo. The hourly cost of the car use (including gas and insurance!) is less than the hourly cost for parking.
Moved to Ottawa from Toronto a year and a half ago. Car insurance, housing, is a bit more affordable and there is beginnings of densification in the downtown core. If you want to live downtown but not pay the rent, you can always go across the river into Gatineau, Hull sector. The price for rent/housing drops a further 50%, though you pay Quebec taxes (which are a bit higher). For some reason, I still have to explain to people here that the money you save on rent vis a vis Ottawa can be dumped into your RRSP. You save on taxes and then use an RRSP loan to put down your ‘20%’.
…but, I really do miss all the girls in Toronto.
I wonder if they’ll feel the same way once they have kids and see that the schools in city centers are not up to their standards.
That’s how it is in Los Angeles.
“all of these folks are underwater for like 1/2 the loan term”
It basically makes it equivalent to a 3 year lease … locked in due to no equity for 3 years. After that point they can sell up and pay off the loan with nothing to show for it.
Looking at it like that it makes more sense than a lease because, you CAN get out early or extend the ownership without having to file piles of paperwork.
You also have to pay sales tax on the full price of the car, and interest on that tax. Something that you don’t on a lease.
The sales tax treatment varies from state to state.
You get bit twice in New York. Sales tax is rolled into the cap cost of the lease. When you buy from the “car maker leasing co arm” you get hit with sales tax again.
And we wonder why this is the 50th worst state for Business ?
That varies from state to state, Maryland gets you on the full price of the car. With residuals so high right now that puts the effective tax rate in the 13-14% range.
It used to be even worse than that, in the 90s they’d get you for the full price of the car up front and then get you again for each monthly payment because one was a “titling tax” and the other was a “sales and use” so they could stack. If you bought it at the end of the lease they’d tax it a third time.
Not a lot of people leased here back then.
I don’t know…By the time a car hits 8 years I will have likely needed to replace something that was spendy. Not to mention all of the wear items like tires and brakes.
With a 2-3 year lease I get to skip most if not all of that. If I am going to be perpetually paying on a vehicle I’d personally rather it not be pushing a decade old. Yes, if you keep the car 15 years you’ll come out ahead, but very few keep it that long and I’d be willing to bet most that do hang on to a car that length of time do not get an 8 year loan. Why not just do a 15 year mortgage?
Indeed. I usually only buy what I can / am willing to pay for in cash. In the rare case I finance, as we just did, it’s because we got a manufacturer’s 0.9% financing (free money, essentially). Even then, 4 yrs. max.
A friend of mine who’s a longtime service manager for a large Mercedes dealer said in his opinion modern vehicles are so complicated that he’d never finance anything not under factory warranty, he isn’t sure he’d even keep a car that’s not (he had a knock-down, drag out warranty battle with Ford over his own Crown Vic with a defective transmission that they kept telling him was “normal” — this to a guy with 40+ yrs in the automotive repair field).
The idea of 5, 6, 7-year loans is frightening (automotive equivalent of giving people mortgages they couldn’t afford and leading to foreclosure, short sales, etc.).
I remember taking out a 3-year loan on a car in order to get an additional dealer incentive. After a couple of payments we sat down and did a little math and just paid the loan off; haven’t borrowed money on a car since, preferring instead to buy more modest and/or used vehicles.
It can make sense to borrow on a car, but the main scenario that comes to mind is when the vehicle is critical to income generation. In these cases it can be possible to dramatically lower costs simply by participating in the market at a low entry point. Pick up trucks are funny this way. The contractors and landscapers I know always buy at the rock-bottom of the fleet market, plain white F150s usually, typically with only AC and a towing package as options and maybe with 4WD if there is snow-plowing revenue where they live. They work these to death and every cent of interest they pay on a loan is worth it. There’s no way this pencils for a person of modest means who commutes in their high-option F150.
“It can make sense to borrow on a car, but the main scenario that comes to mind is when the vehicle is critical to income generation.”
In my opinion, you are better to disassociate the necessity/desirability of the vehicle purchase from the financial transaction, handling one with the left hand and the other with the right.
In my situation the vehicle was $37,500. My choices were, after $2500 down,
1. Pay in cash by taking the $35,000 from an ongoing 18% income stream thereby losing $22,500 in compounded interest over 36 months or
2. Use the dealer’s 0.9% interest loan ($465 total interest), offset with a “Bonus” $500 first-payment credit for a net of THEM PAYING ME $35 to use THEIR money.
I took option #2 and let the investment income pay for about 60% the vehicle purchase price. This was after we cut their “No-haggle bottom line price” by 12%.
It seems to me that those who proudly proclaim they never finance vehicle purchases may need to reassess their financial accounting skills…
“1. Pay in cash by taking the $35,000 from an ongoing 18% income stream thereby losing $22,500 in compounded interest over 36 months or”
If I had a guaranteed 18% investment return I wouldn’t be paying cash either. Unfortunately, my guaranteed income stream is more like 1%.
Your math is fine. Others aren’t making mathematical errors if we don’t use the car to generate income, or we can’t get financing at a rate significantly lower than the return on our cash invested elsewhere…. 0.9% is almost a no-brainer in any case.
And today it’s highly unlikely that you’ll find a guaranteed 18% income stream (or even 8%, or 6%), so that’s a specious assumption but it does make for a good example. ;-)
since this site is malfunctioning and won’t let me post this under the last Caddy article, i thought I’d try it here.
Bill Knapp’s was a Midwestern restaurant chain with outlets in Florida as well. they did a thriving business until they hired an outside marketing hotshot who revamped the menu and significantly altered the decor thereby alienating their customer base. they soon after closed for good. I miss the homemade chicken noodle soup and the free chocolate cake on your birthday.
Extended loans are bad bad bad for responsible consumers who pay cash and take short term loans. They allow the price of cars to go up as payment shoppers who buy on the monthly payments are now able to “afford” a higher sticker price. What’s really ridiculous is the price bloat in trucks and SUVs.
You got that right. Most manufacturer websites these days calculate payments on a 72-month repayment schedule by default. When I switch it to a more reasonable 48-month schedule, it’s kind of shocking to watch the payment balloon.
The way prices keep going up, 72 should soon become 84.
$6K in interest over the life of a ~$40K 8 year loan is pretty cheap money compared to the 3 year, 10% interest loan you might have gotten in the early 90s, which would cost upwards of $6K in interest as well. A 3 year loan today at 3.99% would cost less than $2,500 in interest, of course.
I think the problem with this isn’t so much the long loan terms (cars theoretically last longer, etc.), but that it seems people trade out of cars with negative equity and continually increase the amount they owe. People might as well be leasing, but it seems to have a stigma with some people that somehow doesn’t apply to “owning” a car on an 8 year loan with $10K negative equity.
Yea, leasing is actually a pretty good deal compared to the perpetual rollover loan. You get the new car every couple of years and costs are relatively fixed.
Especially if you can get a lease through the manufacturer’s finance arm that is willing to estimate the residual at the end of the lease at something crazy high.
Leasing a new car makes sense. In most major Canadian cities we have emissions testing every two years to get your licence plate sticker. They have changed the rules now that regardless if the actual emission coming out of the tail pipe are within range, your car can’t be tested if dash lights are on. On a 5yr old car with a vacuum leak somewhere you must pay to have it fixed before testing. You show up and the light is on, still cost you 50% of the testing price even though they won’t test it. I have had my Acura, Nissan and Toyota pass in the past even though the lights were on. Now they wouldn’t even hook it up to the machine. They want $100+ per hour diagnosis time plus parts and labour. Its becoming increasingly expensive for a young person to even own a older car. Not to mention insurance for young drivers…
This is fairly interesting when you consider that new vehicle buyers keep their car for an average of 6 years. If that trend remains, most people will either trade out of a 6+ year old car with money still owing, or jump right into a new car with more payments, never really enjoying a payment-free ownership period.
It Would be interesting to see it broken down into brands.
Wondering if a part of Chrysler’s sales boom is due to negative equity. A vehicle like the Grand Caravan that retails for more than $10,000 below the MSRP, can absorb a lot of negative equity that is a result of an extended term.
I’m confused…. unless folks are paying MSRP, what does the GC’s steep discounting have to do with enabling longer terms? Not trying to be snarky, just not seeing the connectino.
Basically they finance the vehicle at MSRP(assuming you qualify – of course easier to qualify on a 96 month term) and use the difference between MSRP and retail to pump up the value of the trade(on paper) to make the negative equity on the present vehicle and its loan go away.
Dealers will also just cut you a cheque for the difference between msrp and retail if you wanted to pay off credit cards etc….
I got you. So basically they are just pushing for unnecessarily big loans, and letting the customer pocket the difference, while they walk away with a commission that much bigger. Almost like a HELOC. Customer still loses in the end though; what happens if they total the car? I hope they are forced to get gap insurance.
@dash riprock & sportyaccordy – I’ve had Chrysler try to talk me into a long term low interest loan on a van but when one looked at the fine print the deep discounts seemed to evaporate. I took the deep discount and had my own financing in place. They tried their damnedest to convince me their loan was better.
When I picked up our two cars from the Lexus dealership on two separate transactions, the finance manager didn’t even batt an eye when we paid cash. It was almost as if it was a regular occurrence at that dealership. I’d like to know the percentages by brand also.
There are so many financial tools, tricks and the like now available to dealerships that the purchase cycle is trapping customers. A lot of people buy on payments and buy more than they can afford for too long. Something happens to the car out of warranty, they get offered a new car. Negative equity rolled into new purchase. I know it seems like a great deal, no pricey repair to worry about, couple of bucks per month more and I walk out with a new car…..and they are back a few years later to do it all over again. Same with leasing, you get the car you want at a payment you can afford but when it comes time to turn in, you have a few scratches, need new tires, are several thousand miles over and …….it all gets rolled into your next car so you can avoid paying a few grand to walk away. It is a viscous cycle.
I will say though, for those with good credit, it is insanely easy to walk away with a new car for no money down at very affordable prices and very reasonable terms…..provided you have a plan and stick to it.
The problem here, like so many things, is that everyone wants to live a celebrity lifestyle on a modest budget. I’m not immune to the lure of luxury goods, but I find the older I get the less I care about what other people think. Putting my kids through college, food on the table, roof over heads, shirts on their backs, presents under the tree, etc. have a tendency to override so many narcissistic pursuits. Most people eventually learn.
It isn’t just the “celebrity lifestyle”; people also are not knowledgeable enough to see what’s happening, understand the severity of the consequences, and once they do, how to break the cycle.
It took me into my 30’s before I stopped making really bad vehicle financing decisions. I honestly think if I added up all the car payments I’ve made since my first vehicle in 1997 I could almost pay off this house. :(
I was thinking about the costs of new cars the other day. Cars are a funny business. People pay ridiculous amounts of money to signal their wealth instead of paying for the product. There are certain cars that just aren’t worth their sticker price. Case in point, the tesla model S. It’s a great car, but it retails for nearly double to triple the cost of a chevy volt, while the volt is going to be a much better choice for 99% of consumers. I was also thinking about cars like the mazda 6, which is a car in an odd market position: It’s got great styling and handling, sells well equipped for mid to upper 20s and does pretty much everything you would want a car to do. Yet, it isn’t very popular at all.
How is Volt a “better choice”? It’s just a worsened Cruze with a ridiculous price. Comparing it to Tesla S makes no sense. Actually, buying a Volt never makes sense, period. Buying a Tesla, however, is wholly awesome (as long as you can afford it).
It makes sense from the standpoint that you want an electric car. The volt can run on electric for 80-90% of an average persons trips and still drive across the country on gasoline, while costing 1/3 the price of the model S. In the end, you’re getting where you need to go at a lesser cost per mile with the benefits of electric and not stopping for charging.
>> It makes sense from the standpoint that you want an electric car.
Not to me. The volt has a now antique 3.3kw on-board charger that takes forever to charge a meager battery. Even Nissan updated the Leaf with a 6.6kw option and DC Fast charge.
If you don’t charge, you’re stuck with gas power. If you need to go cross country and are on the no-fly list for whatever reason, Tesla now has an optional chademo adapter, so you are no longer limited to their superchargers for fast juice. For extra security, you can now get a 60 amp portable level 2 charger that can plug into RV outlets for about $800.
The Volt, despite not really being well executed, and being built by someone who apparently don’t care if you die, is a brilliant concept and idea. I predict we will see more cars like it in the future, because of the packaging possibilities, and the electric motors torque advantages.
Buying a Volt makes plenty of sense for the right person. OTD they go for about $30K. If you can get free power, which she can working for an electric company with free car charging, Based on her mileage and fuel economy she would be saving about $1500/yr on gas. Over 5 years obviously that’s $7500- not a small sum of money. Her commute is about 20 miles each way so she could get by with 1 charge a day and never use gas.
Only gripes at the moment are the car’s looks, to me at least. I hate that glossy center console and the interior in general is just not up to snuff for a $30K car. I’m hoping the next gen version will address these issues and yield a little extra trunk space… if not then used JSW TDI it will have to be.
And the Volt makes way more sense than the Tesla. Tesla is a toy you have to keep tethered to charging stations and outlets… Volt can run on pure power or be gassed up like a regular car and drven cross country. Not to mention the Testla has a ton of teething/reliabilty problems. Looks good and is fast but is a terrible car to actually own.
I experienced hints of condescension and pity several times when after saying “I got a new car” to some friend or colleague and then answered the what kind question with the name”Corolla”. I could easily have afforded a far more extravagant, sexy vehicle, but why? Ego? Insecurity?
It amazes me how much vehicles are a fashion and status statement.
A coworker just traded her Altima for a F150 4×4 King Ranch. She seems confused by the reaction she gets… she came in yammering about it, and everyone just gives her and odd look and says, “Why did you buy a truck?”
It did cement in my mind that the F150 is now a girl accessory. You can’t get it with a stick shift, but try to find one without a makeup mirror!
“the F150 is now a girl accessory”
So are Glocks. Some change is good.
It’s not what I would have chosen, but in the end, who cares what I would have chosen. If it makes you happy and meets your needs, it was a good buy.
I had to catch myself the other day when someone I know bought a brand new mid 30s FWD based cross-over and I was about to give him the third degree “car guy” talk. Instead I congratulated him on the purchase and asked him if he liked it (he answered yes, he loved it) which is what really counts.
Dad told me that years ago, people thought 4 year loans seemed sketchy. 4 sounds reasonable to me, but 5+? Id be ashamed to have to have a 60+ month loan just to buy a car. “Hey! An asset guaranteed to depreciate! I’ll pay extra in interest! Go ahead and tack on GAP insurance, underbody coating, electrosonic paint protection, and a $500 pin-stripe while you’re at it!”
To be fair it’s not uncommon to get a 0% loan if your credit is good. Even with interest, unless your credit is absolute basura, the biggest cost of car ownership is depreciation.
I’ve only seen 0% interest as a special incentive, usually and either/or option with a rebate as the other choice. 0% APR should be viewed as what it is – a rebate disguised with loan terminology. One could just as easily argue that a $1000 rebate on a 20,000 car has dropped their 4% interest rate down to 1 and some change, but it’s as sleazy as the classic four-square.
I received 0%. And negotiated the sale price using Car Cost Canada’s wholesale figures.
It just depends on the manufacturer and the model.
0 percent for 5 years and 2500 cash back. But you have to be willing to buy something nobody wants (Nissan Frontier with roll up windows, power nothing and no cruise in my case). 85 bucks for a cruise kit, 250 for a stereo with Bluetooth and iPod integration and I was good but most do want a little more on the option front.
Financed ~102% (sales tax) of my TSX for 60 months at .9% (or maybe it’s 1.9%?) I don’t remember my discount, but I think I paid ~$28.7k, and sticker was ~$31k? [sarcasm]It’s incredibly difficult to beat a return of .9% or even 1.9% with, say, an index fund, even adjusting for taxes[/sarcasm]
This is a special case – you’re talking about a special offer to move merchandise. You’ll end up paying $665 in total interest instead of say, $2,180.71 with a 2.9% interest rate. They could leave $1500 on the hood (contingent of financing through Honda Financial Services) the way Toyota and GM are wont to do. In this case, keeping funds in investment accounts and paying the loan makes sense.
I’m assuming that you didn’t leave the $29K in a savings account, or this is all pointless.
Eight years to pay off a car loan.
I figure if I can’t payoff a loan in three years, I can’t afford it.
@OneAlpha – I’ve seen 12 and 13 year loans offered on campers. They sell based on low payments. I do agree that if you can’t pay it off quick, you can’t afford it.
Yeah, a loan longer than ten years is okay if you can live in what you’re buying.
If I can’t pay cash, I can’t afford it.
But your policy is acceptable if one must have a new car.
“If I can’t pay cash, I can’t afford it.”
Agreed. But that doesn’t mean I’m GOING to pay cash. Financial leverage is a tool. A fool uses it too much, but you can also be a fool if you don’t use it at all.
Automobile industry may have its ups and downs, but we see credit business ‘z still in tha loung’.
I wish nation-states weren’t submitted to this.
Just a thought.
In the 70s when I was a teenager in Australia a bank or fiancé institution would not give out a new car loan of more than 3 years and a used car loan of more than 2 years.
I do think maybe a 5 year duration on a new car and 3 year duration on a used car would be reasonable.
If you can’t buy a vehicle within that you walk.
A car isn’t really viewed as an investment with capital gain. Why would you have such stupid loan durations.
“Why would you have such stupid loan durations.”
Because our overall economy is a house of cards.
A house of *credit* cards
My perception of Canadians having a more sensible approach to avoiding credit pitfalls just hit the circular file.
Jkross…….I lot of Canadians will deny it , however were very similar to the Americans. Our tastes and wants run along the same lines. In Canada money doesn’t stretch as far., but easy credit fills the gap. A decent new car will start around high 20’s By the time you drive it home 31-32K. . An eight year loan, in our car eating climate? Combine that with credit card debt, and a 400k mortgage. I see trouble coming.
Could it be that many Canucks will take the financing plunge so as not to be caught driving a jalop during a harsh northern winter? I take solace that many are financing a new civic when they do it (perpetual best seller).
As a Norwegian, who can just buy a new car for cash? With an average pay around 45-50k, and new midsizers (like a Golf or Focus) start at around 38k, I can’t imagine anyone at a working age, especially if they have a family and a house, to be able to just outright buy a brand new car cash. If they had that kind of money, they would probably rather just get a loan and buy a Bentley.
Now, I guess over here the chance that you could end up in a situation where you have no money at all is very small, and used cars are still quite expensive,(I paid 32k for an almost 7 year old CRV)so dealers are willing to trade in cars that are as old as 10 years old (or more for a premium car), while most financers prefer that the car is downpaid before it’s 13 years old. Also, there is ‘always’ a ‘money down’ (20-30%) to assure the financer that the car can still be repossessed and sold on if they have to (car dealers can usually make some ‘tricks’ with this part though, especially if you have a trade in).
People who buy cars cash will be looking for a 10 year old car at best. Or they have some ridiculously high paying job.
Then again, there are a lot of completely unresponsible people who get car loans thay can’t afford. There are a lot of auctions around that sell abused cars that have never been serviced, because people can’t afford all the other aspects of car ownership.
Sure, but in Norway, you’re just financing the 125% tax levied on vehicle purchases. Canadians and Americans don’t pay that much for cars. So, a 7 year old CR-V will cost you about $10,000…something you could easily avoid getting a loan for.
Right ….But the young folks up here don,t like the thoughts of owning a 7 year old CRV. Truth be know the 10 k used car is all they can afford. Just like the 350k home is all they can afford. Both the used car,and the cheaper home require a few compromises .
Well, since the whole Norwegian economy is fuelled(pun intended) by oil money, our taxes try to mirror that fact to dampen our purchasing power to a reasonable degree. Because of it’s weight and ‘large engine’ (by our standards) the CRV is taxed as a luxury car more or less.
I guess housing in Norway is not that expensive actually, unless you’re in a big city 350K USD would get you a nice house in the rural areas at least. I don’t really see myself saving up for a 10K car either though. Most of the cars I had before my CRV’s cost me between 400$ to 3K. I just reached a point where I felt I needed a break from worrying about reliability for a while. (If I’m lucky I can start over with cheap crap from next week though, I honestly hate making monthly payments on depreciating goods)
“I just reached a point where I felt I needed a break from worrying about reliability for a while.”
Amen. That’s all new cars have ever meant to me. I long ago payed my dues laying on a creeper and spitting out flakes of rotting car. Or doing parking lot repairs with fingers too numb to pick the dropped nut out of the snow.
What I have discovered since I started buying newer cars, is that there is no such thing as a guarantee for flawlessness when it comes to cars. My probably CRV breaks down a lot less than your average used car, but there is still a possibility that something can go wrong (AC compressor died while on vacation, in 85-degree weather, and finally rendered the car undriveable…)
So now that I technically have the economy to get a brand new compact/midsize car (which would be to small for the family anyway) I’m going to try the ‘two car approach’ instead. (one fun car, one boring/backup car)
If I’m able to sell the CRV for a decent sum…
No, no guarantees, just playing the odds and they’re better for new cars.
Plus of course you have the warranty for a while though you may need to get vocal and engage the manufacturer’s corporate level of customer relations to deal with a balky dealership.
The two-car approach always worked well for me; a pickup/van plus a hatch/CUV.
But fundamentally cars are just a PITA and my only interest in them, though it’s a deep interest, is in reliability, safety and ergonomic ease.
I’ve owned 19 used cars and spent an avg of $847. I don’t want to think about how much I’ve spent on tools, parts, and time. The privilege of mobility is expensive.
Too many people fall into the trap of “saving money” by financing for ownership rather than leasing. While folks who keep their car for 10 years will gain from buying, people need to be more honest with their want and need changes over the next 10 years. Then when these variables change they trade in a car they either just paid off for little money, or more common, trade in a car they still owe more than it’s worth. All at $0 down payment! I see many parents set their kids up for failure in their ignorance as well. Once you start rolling over cars into the next you end up stuck with base models for life without a good income jump.
I kinda want to get back to living like this. Including the monthly payments and deprectiation my current car costs are miles above what they used to be when I only drove jalopies. Even for the peace of mind as far as safety and reliability goes, I’m having a hard time defending the costs. With the cars I had in the past fuel was at least half of the budget, with a newish car it makes up less than 5th of the total budget. (and then my ‘newer’ car gets the same mileage as the old ones I used to have…)
I recently purchased a new car and was going to pay cash. Instead took out a 72 month zero interest loan. Paying cash would not have reduced price of car. I wonder how many loans are zero interest loans? Doesn’t make sense to pay cash if money is free.
Next time look if there is a discount if you finance at a higher rate. For Ford, you just have to make three payments and finance something like $8k. Then just pay it off and you’ve paid a very tiny interest for the extra money in your pocket. Cash is horrible for car dealerships.
As a Canadian, I’m kinda embarrassed by this. I would have thought we were smarter than this, to get on the debt treadmill. I live out west, so never saw the Great Recession of ’08 (? or whenever it was). But I can sure see people heading for the rocks all over again.
As a financial planner out in Edmonton, I see a demographic reasons for higher debt loads. For someone in their 20’s and 30’s, it’s student loans and “starter home” mortgages. For those in their 40’s, I find it’s the line of credit, because “you’re richer than you think”. For the baby boomers, they bought their houses for 1/4 of today’s prices but never trained themselves to get off the credit card trap. I’ve seen older couples with combined incomes of over $200k and revolving credit cards of the same balance. Debt is a behavior problem, and few people save enough when tempted by the Joneses to keep up.
Someone above wrote that “debt is slavery”. Indeed. I’m age 67, debt
free (yes, completely), own my vehicle (which I meticulously maintain –
mechanically, anyway), and 45 years ago got a degree in … wait for it
… philosophy!! I quickly found out how useful that was, so wound up
going back to school for an IT degree (or whatever we called it in the
70s). Said IT degree served me well in the workplace, the Philosophy
degree served me well in my personal life.
My vehicle is 5 years old, but in excellent condition. I think regularly about replacing it, but simply cannot justify spending the money (which I do have). I’m not going to take on $20k+ in debt (or reduce my available capital by that amount) just to have a shinier set of wheels. Makes no sense.
Vehicles are rapidly becoming un-affordable. We need a new Henry Ford
to build cars people can actually afford.
Second richest guy in my extended family is a nephew with a philosophy BA. He turned the Y2K panic into an IT/developer career and now is semi-retired at 38 spending most of his time buying Magic cards, gold and guns. Naturally, he lives in Texas.
My degree might as well have been in basket weaving but it got me into teaching. Drive one new car and one old car. I think I would walk before I would make a loan like described here either the car or the home. BTW I also live in Texas and $350k would buy a nice home in Dallas or Houston but I would be embarrassed to live in what it would buy here in the country. An economy that is a house of cards, indeed.
This might be of interest regarding the auto financial services in Canada http://www.thestrada.net/thought-factory/2013/1/16/money-for-the-deal.html
I realize this is already being done in some ways by luxury marques, and car sharing/rental services…but these long term loans need to be bundled with service to reduce the risk for the consumer. Of course it would be a profit opportunity for the vendor of such a setup and if the OEM does it, could make the customer more sticky.
I have been doing this with managed IT services for years now, I think a similar business model would work for car ownership.
All Canada is is a protected boundary for 5 banks.
There is nothing at that $30-50k new level that cannot be accomplished in $15k or less.
Especially in Canada where used and new car prices (where everything rusts) is retarded.
Best bet- make a nice holiday and buy a texas or AZ car, get all work done there, tires, fluids, brakes, even clutch, etc. and bring it back up to Canada.
Couple things.
1. know what you are going to buy see if you can import it.
2. buy a KM speedo, bring it with or have sent to the dealership where you are buying it to have it installed. as you have to have a KM speedo – the 2 places you can get this done in canada charge a fortune or do shoddy work or both…
3. USA dealerships in this case are really great, they really help and sometimes will even pick you up at the airport- sometimes you just tell the sales rep $50-100 bucks to pick me up.
4. stay in the city a couple days and drive around- just to be sure.
5. if private deal then you will pay GST on whatever that receipt says.
6. bring your new plates & insurance down for full insurance coverage.
Have a fun driving holiday back up.
We’re so lucky here on Vancouver Island. Our mild winters keep cars from disintegrating like back east. No emissions or safety inspections – you can just buy a $500 car and put it on the road. And I don’t see that changing anytime soon, unless the Socialists get elected. And I think the lack of red tape works well for most people already struggling to pay bills. I recall they did a study, and found that less than 10% of accidents are caused by mechanical problems.
I was supposed to visit V.I.H.A. (Vancouver Island Health Authority)
once on business but the project was canceled. I’m told the area is breathtaking.
These loan lengths, current sales.
One word: “Bubble”
Enjoy,
Dennis