Red-hot auto sales and increasingly pricey cars are generally seen as a sign of a resurgent economy and a consumer base that is finally prospering after years of stagnant wages and poor prospects. But according to data from Experian, much of the growth may come from practices generally regarded as financially unhealthy.
In particular, major growth in loans lasting 73-84 months occurred in Q3 of 2014. These long term loans were once unheard of in the United States, but are now seen as a way to lower monthly payments on vehicles that may not be affordable for consumers on a more traditional 36, 48 or 60 month loan.
New vehicle loans lasting between 6 and 7 years grew an astonishing 23.7 percent year over year, with used vehicle loans for the same term growing 18 percent in that same period. The average amount financed was up nearly 4 percent to $27,799 for a new vehicle, and roughly 3.5 percent for pre-owned vehicles, to $18,656. Leasing, another way for consumers to manage lower payments on a pricier vehicle, grew 7.1 percent year over year, to account for nearly 30 percent of all vehicle financing.
With the average age of vehicles pushing 11 years, many consumers are finally replacing their old car now that the economy appears more stable. While the lower payments may be easier to manage, the downside is that the consumer may very well be underwater on their loan before the vehicle is paid off, and trading it in well only lead to a further debt burden as they must pay off the “negative equity” on their old car, as well as a loan on a new one. But the unprecedentedly long loan terms point to a subset of buyers who are likely stretching themselves beyond what many would consider financially prudent.
84 months is ridiculous, you can’t afford it if you need that long to pay for it
Are you trying to wreck our economy?
No, these kind of loans are doing a far better job at it then I ever could
We’re reverting back to those loans of the past.
I watched a Phil Lebeau piece on auto loan defaults recently.
People desperately want to buy a new car, and blame their employers if they can’t afford it.
Hey. maybe we’ll see a minimum wage of $25 an hour soon, and free medical care for everyone!
Yes.. Phil Lebeau knows everything. Everyone buying a new car today is a poor desperate person who can’t possibily think about buying one without help.
Were the loans of the past really this ridiculous?
The automaker and dealer can pretend they’re selling cars, banksters can pretend they mad a money good loan, the customer can pretend he never have to pay for his car……
Hence all of them can go spend the same money on something else. So that Yellen can pretend America has an economy. And the dimbumlbs can believe her while their bulbs grow ever dimmer….
…or we can be like you and just shoot ourselves over the thought of our miserable bleak existence
Just had a guy who works at a bodyshop we do business with ask me for help. He wanted to see if I could help get him out of a 2015 Kia Sorento LX he was tired of paying ~$650/month for. Wow. Can’t blame you. Sure. What’s your payoff…?
$36,000.
…
What? Are you looking at the forth or fifth block of your contact that adds up the total number or payments or the total sale price with your trade and back-end and so forth?
No. $36,000 @ 5.9%
TL;DR, traded in a 2013 Spark LS for a 2010 Pathfinder SE 2WD and then traded THAT in on this Sorento. All within 18 months. So now he’s buried in a $19,800-at-a-good-day-and-slip-a-$50-to-the-auctioneer-and-someone-watching-on-simulcast-is-also-flirting-with-the-receptionist-and-clicks-on-this-sled-for-clean-book base 4-cyl Sorento for ~$16,000 in the hole.
Get used to seeing a LOT more of this in the future when people elect for ‘managable’ payments on brand-new cars that aren’t going to be worth what you until you’re paying on year 4 1/2.
So, he been rolling over upside-down notes for so long he owns $36K on a Kia, geez… part of the blame falls squarely on those who let him do this
So, he been rolling over ups1de-down notes for so long he owns $36K on a Kia, geez… part of the blame falls squarely on those who let him do this
Blame the same banker mentality which led to $40,000 waitresses taking out $450,000 mortgages.
” $40,000 waitresses”
Damn! Where do waitresses make that much!?
“Damn! Where do waitresses make that much!?”
I understand that most of you on here are skinflint curmudgeons, but it is customary to tip your server.
During the peak, there was a great news story about a waitress who kept refinancing her house. She went bankrupt eventually and lost the house but paid for college for her children. Dishonest ? Yes, but so were the bankers who only saw the fees made in each refi but were going to stick uncle sam with the toxic paper. The problem both with the houses and the cars is that the loans are cut into securities and sold to Muppets. The banker sees the fees in making the loan and cares not if the borrower can repay.
Hah! I missed that one.
I understand the vagaries of finance, and how the risk is spread among many as the money wanders.
I have a cousin in Canada that is a bartender, waitress or something like that, have not seen her in a decade and somehow she bought a condo for $250,000. Still trying to figure out how she pulled that off or makes the payments.
VenomV12, my #2 son’s first wife did that in Missouri, but she made a living with a mattress tied to her back.
Well, she’ll be getting at least minimum wage (varies by province, generally in the range of $10-10.50 per hour).
There are tips on top of that, and we can bet that a chunk of this is not reported on her tax return.
So, she’s got a base of around $20,000 p.a., plus the tip income. I’ve no idea what that might be. If it averages $50/shift, that could be another $12,000 p.a.
With 10% down, 3-year money would run her a monthly payment in the range of $850-900, which is about the same as rent.
Obviously, there are other costs to owning a home, but I can see how she might pencil for a lender.
My wife has worked for a number of young, single female clients. Almost all of them are carless and have no interest in buying a car any time in the next several years. To a person, however, they are very focused on home ownership, and very responsible in assessing what they can afford.
Bad news for automakers, good news for condo developers.
ect, my wife’s family is in the real estate business, now consisting mostly of rentals in New Mexico, Colorado, Idaho and Wyoming.
They also own homes in several other states, homes occupied by the family members.
Yup, people do need a roof over their head, even if they cannot afford to purchase a home of their own.
Yeah, namely his brain and his wife.
He owed $12,000 on the Spark. That was managable and I could’ve worked him into something decent (possibly a fullsize domestic SUV with ‘structural damage’) to bury his negative equity while giving him something that he’d actually like enough to keep driving it until a time when the balance he owes and the vehicle’s value align. Now he’s stuck with something a dealer doesn’t even want. If I were a used car manager at Kia, I’d probably overvalue a Borrego before taking in a ‘cheap’ rental-class Sorento.
Which, for the record, if you take even a generous 0% APR for 84 months, you’d better either be dead-set on keeping it forever (like nobody except my dad) or choose a desirable well-equipped fullsize non-Nissan truck, GM SUV, or Wrangler, otherwise this type of financing will only ever end in misery.
Sounds like the body shop dude and Kia Motors Finance are the morons here.
Those are some (but not all) of the only vehicles worth considering, IMO.
What about JGC, Flybrian?
Would’ve been better off with one than a Sorento, that’s for certain!
I see a lot of “keeping it forever”, both in my neighbors and coworkers, someone who trades a car that is less than six years old is a rarity. I replaced my wife’s eight year old Odyssey last year and got an interrogation from one of my friends, wondering why we replaced it so soon.
I think there’s a growing trend of “keeping it forever” because newer vehicles are no better in the important aspects, and in many cases, they’re worse.
I’m in this mindset.
That lack of personal responsibility “blame the mortgage brokers! blame the shady car dealers!” is symbolic of the lack of personal accountability in this country.
Just because someone gives you access to a gun doesn’t mean you have to pick it up and shoot yourself in the head with it.
Financial suicide takes a lot longer and the guy giving you the loan keeps insisting that the gun isn’t loaded
“Financial suicide takes a lot longer and the guy giving you the loan keeps insisting that the gun isn’t loaded”
I don’t care how many times someone tells me a gun is not loaded, I’m going to exercise due diligence and make sure there isn’t one in the chamber.
No matter how many times the F&I guy tells you “this is a good deal”, you need to do your homework, know your own financial situation, goals, and no-go zones.
When you sign on the dotted line, your ability to blame others for any financial fallout is over… even if you should have never been presented with said dotted line to begin with.
The alcoholic can’t blame the bartender for causing his problems, even if the bartender knows that serving more drinks is not wise.
You know that’s only partially true. Consumers should have to take SOME responsibility in deciding and knowing what they can or cannot afford.
And of course I understand it’s not in the best interest of the company selling whatever item. But if people would just take a little time and educate themselves.
Makes me sad.
Yikes, Flybrian.
Now, that being said, I think it’s important to note that there’s a difference between someone who car hops every 8-12 months and rolls lots of negative equity and someone who takes out a long term auto loan.
It goes without saying that we’ll see more people wind up having to roll negative equity in the future as these 72 and 84 month loans increase. It also goes without saying that when fuel prices go back up and those red hot selling SUVs become radioactive to the used car lots that we’ll see some very unhappy campers down the road.
I see a few scenarios playing out: one, fewer people will be able to swap out their rides for a new one on a whim – you’d be amazed at how many people ‘get bored’ and roll the negative equity into a new car. You’ll see more people get ‘stuck’ when a life event changes their needs (“what do you mean, TRIPLETS?”).
Rising interest rates will help cool these deals, along with any economic bumps that we may hit in the next few years.
And, we’ll likely see more people just holding onto cars longer, meaning that we’ll also see some investment opportunities in auto parts suppliers. ;-)
I’m not sure this is as catastrophic as the headlines make it out to sound, but I agree that it is not prudent financial management.
“Rising interest rates will help cool these deals, along with any economic bumps that we may hit in the next few years. ”
I wouldn’t bet on it. I was related a tale where a friend’s nephew who was in the Army (and a wake of very poor financial decisions) got approved for an 06 or 07 Grand Cherokee in 08 just before the music stopped at… 19%. In 2009, he was struggling to make payments and it looked like the Jeep was going to get repossessed. I never found out if it did or not but I assumed it did. This joker in the past once had another vehicle repo’d while he was on deployment to Iraq so there are plenty of idiots out there who can get credit despite 500-600 FICO scores.
Some people need to be legislated and regg’lated into financial health. Left to their own devices, they will crash hard and often, taking the rest of us along on the ride.
Yeah, like back when we outlawed alcoholism. Good times…
Anniversary of the end of Prohibition was this past Friday – 12/5/1933.
No, some people need to be given free rein to fail, miserably and utterly, while sparing the greater overall population and economy. Let stupidity be painful for those who insist on acting stupidly.
” some people need to be given free rein to fail, miserably and utterly, ”
Been there and done that. I think that over my life I have failed more than I have succeeded but my successes were more than adequate to nullify my failures.
And no one bailed me out. Can’t qualify for any government assistance, freebies or handouts. Just too White.
Sadly this wasn’t done to the Bankers who blew it…they got bailed out. Personal Responsibility is for the little people.
Understood. That’s why I wrote “no one bailed me out.”
Wow. $36K would be acceptable for a loaded Sorento SX V6. I can’t believe he’s rolled over the negative equity so many times that he owes $36K on a *base* Sorento, though…
I’d have a hard time stomaching that amount on ANY Sorento.
Edit: Now I’m going to try saying side a few times, to see if I can get away with whatever I want as long as I’m within the edit box after the fact.
Side side sidey side sides.
Preach brother Flybrian, preach.
“traded in a 2013 Spark LS for a 2010 Pathfinder SE 2WD and then traded THAT in on this Sorento”
Glutton for punishment.
The quite unmanageable costs of owning any new(er) car are well known to us, but all of the 96 month loans and sky high MSRPs of nearly everything are just a house of cards as Derek as been reporting.
One thing I’ve learned firsthand is that consumers absolutely know how to budget – they just don’t really grasp how that budget is arrived at.
I’ll throw my dad in there as an example. He traded in a ’98 Regal GS on a leftover ’00 Bonneville SSEi back in Jan 2001. The whole amount (~34k) was financed through GMAC for 0% back when the F&I guy said, “I’ve never seen 0% on so many cars (Park Ave, Bonneville, some LeSabres) and we’ll never see this again” – and he was probably right except for, you know…
Anyhow, it was like ~$540/mo for 60mo. Was that smart? Well, he still has the car today, it runs fine, and he loves it, so yeah – that made absolute sense. But the vast majority of people wouldn’t be satisfied driving ANYTHING for fourteen years and would go through several cars in that time frame, whether it be by necessity or desire.
$450/mo sounds great when you’re kissing your ’01 Sentra goodbye and driving off in a Fiesta you can sync your phone with, but in two years when that girl you fool around with gets knocked up and you have twins, its not that you can’t swing the Fiesta; the Fiesta can’t swing you. Plus, the need and desire to constantly trade up and out is omnipresent, leading to this vicious cycle of rolling over negative equity to the point where you end up being stuck in the last Outlander LS on the lot or whatever unfortunate sled you end up with.
Then, they get tired of that after sixteen months and come to some dealer like me who has to teach a community college course in personal finance with a minor in automotive history to explain why they owe $35,000 on their $25,000 2015 base sedan that’s worth $17k and why I can’t lower their payment into a 2008 Mountaineer when its only $10,995. Then, I find out that some new car F&I guru grossed their SSI retirement income up so they can pay $450/mo on a $1550 fixed income and of course they have no money down and there is absolutely no deal within radar distance. They then complain about my Guaranteed Financing sign, leave in a huff, and – if I like their car – I save their VIN in my Manheim Workbook so I can buy it when Santander or US Bank repos it and runs it in a month. Just kidding about the last part, but I should.
I’ve also learned the hard way to never, ever waste time with anyone pulling up in an immaculate late-model single cab fullsize truck because I guarantee they’ve been laid away at some Ford dealer and probably owe an F-250 Platinum on an F-150 W/T.
Finally, I always get a kick out of those Forbes and NYT articles that blame subprime used car lenders for these peoples’ woes. It couldn’t be further from the truth – its the NEW car subprime lenders who are putting these folks in the trees and selling payment, payment, payment on high-ticket new cars. When you think about it, buying a six year-old 75k-mile car for $350/mo for 36 mo @ 24% isn’t as awful as it sounds because at least its only three years and you can see the horizon somewhere in the distance. Plus, the car’s already taken its big depreciation hit.
Have your dad call me if he ever unloads his Bonne, I am running a Church of 3800 after all- maybe give him a deduction.
“When you think about it, buying a six year-old 75k-mile car for $350/mo for 36 mo @ 24% isn’t as awful as it sounds because at least its only three years and you can see the horizon somewhere in the distance. Plus, the car’s already taken its big depreciation hit.”
I did something similar to that in 2010, except it was 16% and $288 I felt was too high on my GP, so I paid if off in 2012. But I’ll play devil’s advocate on an MY11-12, today’s 75K new used have some additional risks: oddball or expensive tires may be needed at 75K, brakes/rotors may need replaced, weird motors may need sensors or other work, newer transmissions will need fluid changed (if this is even possible to do), some cars will need timing belts, some will need other wearables replaced (not to mention any recalls). Can the “Average Joe” swing $350 plus all of the needed maintenance, plus full insurance? The new-used car for $450ish and 1/3rd miles seems like a better bet for most people.
And that’s exactly what I try to gear a good portion of my inventory towards – 2-4 year-old entry-market cars with good equipment under 50k miles that usually still have some form of factory warranty remaining even if its just powertrain. This usually means I always have a dozen cars consisting of stuff like Focus, Fusion, Versa, Sentra, Altima, Escape, Cruze, Elantra, Sonata, Sonic, Jetta – things I can buy for 7-9k and sell for $12-13k out the door with around $1000 down or a equivalent trade.
Naturally, this sometimes means getting auction-announced ‘structural damage’ cars, but they A) usually have clean CARFAXs and B) are B.S. things like ‘dent in wheel house’ or ‘tie-down damage’ or ‘dent in rocker’ or ‘seatbelt damage’ (which I still haven’t figured out) or my favorite ‘unknown’…??? Still, I’d rather get leather, nav, and a roof with frame than a base car w/out.
Anyway, this is stuff a first-time buyer with no credit can get done on with a respectable interest rate in the teens with sometimes no money out of pocket and drive a nice car that still has warranty for probably half the life of the loan if not more. Funny note – only the bottom-feeder subprimes care about auction-announced frame damage because they know it diminishes resale value at the sale and they figure the paper they buy is going to default anyway; the better companies and credit unions could care less.
As I mentioned before, I used to do heavy subprime when I started the biz up to where I was at a few years ago, so to me a nice low-mileage car was like 78,000 miles.
Flybrian, you should be writing for this site in a capacity other than commenter.
Flybrian, this is why I buy new only when I have a paid off trade that I just don’t feel like hustling myself during a sale of a last model year or model itself. Normally I seek out the rare stick shift with most of the options that has sat on the lot for far too long.
Or I look for the top of the line edition of a model that is still in generation that is two to three years old and just off lease. Buying a sixth gen Honda something doesn’t take much from a wrecker yard to refreshing the front and/or rear fascia and head/tail lamps to make it appear its two years newer.
Finally, failing all else, I find that rare bt lovely shade tree mechanic who in his spare time unloads a car or two. I’ve bought some really nice cars of 10 to 15 years old and have driven them with a modicum of work and parts. The best thing of selling on a used classic is you generally get the money back, sometimes plus some.
Well, at least the Kia has a fantastic warranty. He needs to take a 2nd job and drive that Kia with kid gloves and take really good care of it, and try to pay it off as quickly as possible and then drive it into the ground. Only way to get his money’s worth is in transportation utility. However, few people without a slew of kids buys a minivan anymore, so I’m guessing his brood will have turned that van into a smoking pile of crap in a couple of years.
The debt based, negative equity on depreciating assets, credit crack up economy is booming!
And more and more suckers are getting on that bandwagon. Have you heard, there’s a new push by Democrats for more “home ownership” in the minority communities?
Never mind that so many just can’t afford it, like they could not afford it prior to 2008, and defaulted.
There is so much fake money out there is it downright scary. The stock market is utter nonsense right now and the valuations are insane garbage. When this economy crashes again, it is going down hard.
The idea is to be prepared for that if or when it happens. The last time around (2007/2008) my broker and financial analyst advised me to get out of the stock market.
And it was a sage call indeed, especially when coupled with hoarding cash.
Debt is not growth. The US government can either regulate the auto and home financing markets into better health, or these cycles will not stop repeating themselves. Your average consumer tends to have little to no long-term memory.
a) Shopper goes to dealer for x car divided by 60 months = they can afford $300 month.
b) Dealer shows them n car divided by fifteen-year mortgage = they can afford $300 month.
c) Newly-minted sucker leaves dealer in n car.
I’m currently paying off a car, and it’ll be done at the end of the year. I bought it last October. But I have a 72-month loan. Why? Because if I lost my income halfway through my 14-month payoff schedule, I bet I could still have made the payment and not screwed up my credit. I realize that most people are probably trying to buy a new car on a used-car budget, but not everyone who opts for these long-term loans is overreaching.
That’s a good counterpoint, and it shows that steadily rising car prices play a part in this “monthly payment buying” epidemic. From my years here, it does seem that most of the TTAC readership (or commentatorship, anyway) makes a decent wage, and perhaps doesn’t feel the same crunch as those making 10 bucks an hour or less. I don’t miss those days, but I sure haven’t forgotten them either.
I think the difference is you’re taking out a 72-month loan on a monthly payment that is beneath what you can afford, not figuring that the way to get this brand-new X-Mobile is to stretch the payments out so far that I can barely afford it right now when I’m making good money. Big difference.
Sure, but here in the B&B it is assumed that OMG everyone else is a moron and poor and can’t possibly afford XXX new car (potentially because some of the B&B can’t afford it…) and the only reason for an 84 month loan is to squeak into a car you’re one light paycheck away from losing.
It couldn’t POSSIBLY be that some people are good at math and realize that when someone waves FREE MONEY at you, maybe you should grab it. Said another, why I just financed $30k+ for 60 months at POINT NINE percent. My 401k is up 12% this year, my mutual funds by the same amount. But I should finance only for 36 months, or maybe pay cash, just because some angry curmudgeon on the internet doesn’t understand leverage. Got it.
+1
I have a 60 month loan on my BMW because the 36 and 48 month was the same interest rate. So why not? I could pay it off today. That money is making me money though, so I won’t. When interest rates were double-digit, paying cash made sense. It doesn’t right now.
I put enough money down to never have to worry about being underwater. Same with my Abarth. Big down payment, selling it shortly and will come out with $5k in hand. Does no one do down payments anymore??
Cars are an expensive hobby, but I try to do it as responsibly as I can.
“I put enough money down to never have to worry about being underwater.”
Even being underwater, people talk about that like it’s the worst thing in the world. It CAN be, if you don’t have the nut to cover it, but I put $0 down on my TSX when I bought it and financed 10X% of the purchase price (the price + TTL) because screw it, if I need to sell I can take that money out of investments or savings and sell. If I don’t, which I won’t have to, that $5k down or whatever sits in cash-making investments/accounts. Now, I don’t advocate financing negative equity (bad bad bad) or buying something you can’t at least walk away from, if not purchase outright if you had to, but the only reason I see for a big downpayment is for monthly cash flow reasons or because you’re trading in a car (my last purchase we put down $10k, $7k was a trade in and $3k was cash because my wife is anal about a car payment over $500, but happy wife, etc).
I will also admit this viewpoint is built upon a career of buying in-demand Hondas and Acuras that have stellar resale. If you want to buy a Dodge Avenger or Caddy CTS V Sport or Hyundai Tiburon or whatever that’s immediately worth about 40% what you paid for it, different story.
That’s exactly what I did. My loan is 72 months at 0.9% interest, but a fortunate change in my finances has allowed me to start making double and triple payments, as well as put most of what I earn into savings. If I ever did have some kind of financial calamity, I’d know that I could make the base payment.
You are clearly part of the problem that Derek is writing about. How dare you take such a loan.
Just like the housing market, the availability of cheap and/or long-term car loans just drives the prices higher.
It used to be, if you couldn’t afford a $30k car, you’d just buy a $20k car (today’s money). Now you just stretch out the loan a few more years and get the top model.
If you drive 15k miles/year. You’ll be making your last payment on a car with over 100,000 miles. Think about that.
yes, the automotive industry is just like the housing market….carry on.
I’m not saying they’re exactly alike, and please feel free to turn off the snark.
But if it wasn’t for cheap, silly loans, there would be a lot fewer $300k McMansions and $60k Silverados being sold.
Yes..because Silverado moves at 60k per unit.
Time to re-read the clown car story: http://www.mrmoneymustache.com/2013/04/22/curing-your-clown-like-car-habit/
I just love how 5% of that page’s length is article and the rest is comments.
Drzhivago138, because it hits home for many people. I see the generation of my grandkids struggle, many of them with freshly minted Degrees in hand, yet deeply in debt.
The jobs are out there, but as one young horticulturist class mate of my grand daughter told me, “The jobs they offer me won’t be enough to help pay off my student loans!”
Directed at the universal ‘they,’ not a specific ‘they…’
Maybe they should think twice about “investing” in a 4-year college and the accompanying debt and learn a trade and a vocation school. There’s some weird stigma in this country about tradespeople that is going to have a crippling effect on my fellow millenials who don’t get it.
Flybrian, two things. My grand daughter does not have any student loan debt. In fact she has no debt at all. We saw to that. We’re damn near broke but we can always make more money.
Her classmate, Sally, was referring to the GS-5 (Temporary) job offer they got when they both contracted to do the workstudy program that was to result in an offer of a Career Conditional GS9/11/12 position. Huge difference between the two paywise and status wise.
The State agencies cannot match the amount of money the feds offer for the same position, nor the bennies, nor the Retirement system, nor the Thrift Savings Plan with 5% matching funds, nor the Holidays.
So they both declined the GS5 offers. Not commensurate with their level of education.
But they are both working for real money — just not officially.
Officially, they are unemployed, not on welfare, not collecting anything, supposedly living with their parents, and on their parents healthcare plan. Like so many other recent college graduates.
“Maybe they should think twice about “investing” in a 4-year college and the accompanying debt and learn a trade and a vocation school”
What 18-22 year old kid thinks like this? Yeah it may be truth and a damn bit better shot at security but the fact remains very few of them/us can even dream to think that far ahead. A vocational school is good advice until they see their welding uncle laid off again or machinist cousin who still can’t find work. Advice to a post-teen falls on very deaf ears, though of course you try. Sadly a parent/grand-parent has no where near the marketing savvy and reach of a Multi-Billion dollar industry that preys on the young and naive.
dolorean, vocations have their place in society and are for the most part useful.
But I am an advocate for generalists/specialists with a recognized Degree from a College or University.
My 23-yo grand daughter who is still officially unemployed after graduatring this past May, will be going for her Master’s Degree next, as soon as her dad retires from the banking business at the end of this month, and moves back to New Mexico.
Her friend Sally is already in a Graduate-level program.
Horticulturist? Perhaps he should spend a spell in haberdashery for a brighter future.
28-Cars-Later, yeah, Horticulture – like in Forest Service, Dept of Agriculture, Water Sheds, Rocky Mountains, Bureau of Reclamation and Land Management. And, of course, the State agencies with the same mission.
My grand daughter has a Bachelor’s in Horticulture as well. In fact she spend Jan-May 2014 at a work-study program designing watersheds to complete her degree.
Per contractual agreement for the fully-funded workstudy program she was supposed to be offered a Career Conditional GS9/11/12 position where she trained.
What she and her friend got were GS-5 (Temporary) position offers from two different locations. HR blamed the Sequester for not offering them the higher positions.
Since both of them declined to accept the job offers, there was mass consternation at those two locations. They thought they could get these two fully-trained college grads for cheap. But now they came up empty.
Perhaps most folks have no desire to actually own a vehicle, and prefer to deal with transportation on a monthly payment basis.
The length of the loan term is merely a factor to uphold the monthly payment, and roll over deficiencies.
At this stage when many loans are in the 130-150% of MSRP there will never be any equity in the vehicle. Consumers are keenly aware of their situation. The reason they roll over vehicles, roll over the deficiencies, and are enabled by the manufacturers and financial service providers.
The situation in Canada http://www.thestrada.net/thought-factory/2014/12/1/the-evolving-ownership-model.html
Article in the financial news today says the 3% down payment mortgage is back baby, and this time it will soooo be different!
I’m stockpiling cash and strategically paying down debt, waiting for the next crash so that I can take advantage of it this time. I had a gut feeling that the market was going to turn right before it did, and could have made a killing last time, but my employment situation was much worse then and I couldn’t take any risk. Now is a different story.
Today my parents got their new CRV delivered. I negotiated the deal and left them with the finance manager… They had a 60 month bi-weekly payment plan. He was telling them “oh for $35 a month you will get gap insurance, rustproofing, extended warranty, etc…” . They declined like I had told them to. Well he told them all these sad stories about his brother needing these products and wouldn’t let them leave for another 45min. Clearing his throat repeatedly every time he asked for the sale lol. My parents were actually upset after leaving… When she called me I said look it’s really $35 bi-weekly more for 5 yrs that is $4500 extra at 1.99%. Even if they wanted to sell their car after 3yrs they would have so much extra negative equity rolled into the next car it would be a mess. With these longer payment terms dealers are really taking advantage. On a 72 month term every bi-weekly dollar is close to $280 in real money. They confuse and abuse customers with these payment options. People are under pressure and get fed false info like my parents did. It was that much twice a month, not once and they declined it repeatedly. I’m happy she called me back to ask. Then he said is English wasn’t so good, that was the reason for the mistake lol
Good job!
GAP is a good product if you’re buying as a subprime/secondary consumer or rolling a large amount of negative equity into the new vehicle, but you can nearly always get it for much less than the dealer is trying to sell it to you for. I know our markup can be $100-400 for GAP. I don’t push it because I have a different dealer model as a smaller independent, but there is a LOT of money to be made on GAP.
I have a few friends who sell at CARMAX and I am utterly shocked at the abject stupidity of people who go there (and buy cash or with drafts, nonetheless) and opt for things like heavy-coverage extended warranties on a vehicle like a Corolla, Accord, Regal, or F-150 – cars with either already-extensive factory coverage or low propensity of mechanical failure or ones that are cheap to fix even if things do break.
Automakers can keep raising prices and raising the period, but guess what, I ain’t buying it if I can afford it outright.
The longest car payment I’ve ever done is 36 months, and that was plenty long for me, if I can’t pay outright now, then I can’t buy it. The only person I want to pay back is myself.
84 months is a payment period on a decent sized home.
I used to be of the mindset that you should have a car loan of no longer than 5 years, now I am of the mindset that it should be no longer than 3 years. These super long car loans are a very bad deal and are going to lead to disaster. That is a lot of the reason why you are seeing cars with these crazy BS sticker prices these days. I’ll keep what I have or buy a reliable used car before I engage in that game.
The way I see it is this way;
1. There should be regulatory control regarding the finance and banking industry. This would mean a maximum duration of a loan would be established.
2. Personally I do cons!der 60 months for a new vehicle loan term and 36 months for a used vehicle loan. The used vehicle can’t be older than 5 years.
3. This includes any form of loan for a personal vehicle.
4. Leasing should also be regulated. A new vehicle shouldn’t be able to be leased for more than 3 years with a new vehicle for personal use and a used vehicle should never be allowed to be leased for personal use.
5. Business use of vehicles should abide by a different set of regulations governing private and business use.
This would reduce the and protect all consumers buying vehicles.
I do realise some will say it is the responsibility of the person and the banking/finance institution.
But, as was witnessed many can be hurt by irresponsible lending. So the consumer must be protected.
Big Al –
The law of unintended consequences (or good intentions), runs both ways. I get what you’re saying, however:
1. Maximum loan duration would hurt people like me and others here who commented that we routinely take out 60 or 72 month loans at zero or near zero interest because we can put our capital to better use elsewhere and fully afford the product we’re purchasing.
2. Hop back into the way back machine and people would tell you that if you couldn’t pay cash for your car, you couldn’t afford it. How many fully cash buyers on new cars exist today?
Who, exactly, are we protecting? People form making bad decisions? Fact is, humans have made bad decisions for thousands of years, and will continue to make them.
Now, if we’re talking about *disclosure* of terms, rates, and preventing fraud – that’s a completely different story. However, if I’m a loan officer and someone comes to me wanting to roll $20,000 of negative equity into a new Kia and the formula demonstrates its within guidelines – why not?
Look, I have a friend who used to work in retail banking. Her branch was located near ‘the ponies’ and every week she had a group of regulars who came into the branch to withdraw hundreds or thousands to go gamble. Every week she would try to counsel them, “Mr. Smith, don’t you think that money would be better used in your savings?” Fact is, Mr. Smith didn’t care. She couldn’t stop Mr. Smith from making poor decisions.
Context is required in these decisions. One of my clients handles automotive bankruptcies and in ten years of working with them the default rate has hovered between 2%-3% of all auto loan originations. They deal with Ford, Chrysler, Honda and Nissan.
Even with better financial education you’re still going to find a certain percentage of the population making self destructive choices. Witness the number of alcoholics, drug addicts, etc. that we have in society. The key, as you suggest, is to make sure the rest of the market is well insulated.
hreardon, though I admire your premise, I disagree with you argument. “Who are we (I’m assuiming you mean society and gummint) protecting? People from making bad decisions?” Yes, yes we are. Just like we would for a four year old that wants candy for dinner instead of carrots. He’ll do everything possible to bypass your authority to get what he wants, but you don’t just leave candy in front of him and tell him, “No!”. You remove said item and make it much harder to get to thereby making the object of desire out of sight, out of mind.
In reference to Mr. Smith, who is unable to curb his addiction to “the ponies” and seeks to find ways to continue to f–k his life up betting on them. If said, sad Mr. Smith has to go through some hoops, to include counseling from a sane, non-judmental person before he shoots himself again in the foot, then bravo. I for one, much prefer that that to the ATM convienantly located near the men’s room that allows instant access to screw your life. I applaud your friend for her voice of reason and will bet (yes, continuing metaphor) that she has managed to get through once or twice.
The key is not to make sure the market is well insulated. It always takes care of itself and the people that run it. The key is to protect people from other people and most importantly, from themselves. This is why we keep 18 year olds from buying whisky, 15 year olds from driving on the highway, and four year olds from eating candy for dinner. To protect them from themselves.
Right, but when we’re talking about consenting adults. Who decides who else needs to be “saved” from themselves under what conditions? You? Our social betters? There is such a thing as overreach. No thanks, I prefer the freedom to live and die by my decisions for better or worse.
Remember, we’re not talking about adults governing the decisions of children, but adults over adults.
A rational man might make an argument about intelligence as a discriminator amongst adults, but that would become icky real quicky.
Humans are animals competing for resources, some win, some lose, all die. These arguments about what is right miss the point – right and wrong are concepts that we invented, they do not exist in nature.
@danio3834,
It isn’t about YOU.
It’s about how YOU, if you were making poor judgment can affect OTHERS.
Our society if full of these “social” laws and regulations that are protecting us from others’ poor judgment. These rules/regulations range from driving a vehicle to freehold title of land.
These regulations are what differentiate us from developing nations who don’t have adequate governess offering their society protection. Hence the ‘little man’ has little opportunity like we do in a developed nation. Look at the term ‘developed’ we are called that for a reason.
Call it social or whatever. But I do feel that I shouldn’t have to bear the burden of anyone’s poor judgment.
How will this affect YOU? It will only affect those whose don’t have enough to be able to service a debt. If you don’t have enough then you haven’t earnt, save some more or work harder.
Because if enough don’t service their debt it will be YOU that’s left holding their debt. In the worse case scenario it’s everyone in the country.
hreardon,
My goal isn’t to reduce what you want to achieve. You want to increase your wealth, which sounds like a fantastic idea.
My problem is with the lending institutions and their ability to make accurate and educated assessments on who THEY should lend to.
You will still have money available.
Freddy Mac and Fannie Mae arose because of irresponsible lending practices. The way these loans where packaged and sold to investors was irresponsible.
When the holes line up in the Swiss cheese then everyone is affected. Even the ones who don’t have any investments or need to borrow for an investment.
Most of us can make wise decisions, but it’s the minority of borrowers and lenders that do make greedy or ill cons!dered decisions.
Home ownership for all is a worthy goal. The problem was that people were being sold homes and weren’t told about things like property taxes, homeowners insurance, and they didn’t have a concept about maintenance and rainy day savings. The real issue with purchasing a home right now is not the price and the interest rates but the local government and their ever increasing property taxes and fees. My mortgage on my home is about 1100 dollars and then add another 600 per month in state taxes. Thats insane.
Yup, property taxes and fees are a huge source of income for municipalities. Yet another reason why so many people are locked out of buying a home of their own.
Good for rentals though.
Oil revenues also play a huge role as an income source for states. The lead story in today’s paper was about how the lower cost of oil was going to seriously dent the NM budget for next year.
These stories of negative equity and car-hopping remind of my first impressions in a public school after Catholic (no, our priests weren’t boffing altar boys, just ethnic cleaning ladies). Sodom and Gomorrah with ADHD .
There’s clearly some congruence between Flybrain’s people and Crabspirit’s but I can’t yet articulate it.
I believe in buying as close to base model as possible and keeping it at least 6 years. Or used and damn near forever if it’s a pickup/van.
“There’s clearly some congruence between Flybrain’s people and Crabspirit’s but I can’t yet articulate it.”
People with no hope of obtaining financial status through any other means outside of a lottery win grabbing at any opportunity to emulate what they perceive that status to be
“There’s clearly some congruence between Flybrain’s people and Crabspirit’s but I can’t yet articulate it.”
People with no hope of obtaining financial status through any other means outs1de of a lottery win grabbing at any opportunity to emulate what they perceive that status to be
I actually have some sympathy for that having watched rung after rung of the American career ladder be removed for lo, these many years accompanied by ever more frenetic advertising and pressure to consume.
But I still want a societal moat twixt hapless deadbeats and me. Things can’t get any better; all we can do is remain comfortable till we die out of it.
Things have never been better, but they’re improving…
“I believe in buying as close to base model as possible and keeping it at least 6 years”
I’m of the camp that never buys base model, but will keep it for at least five years. Always get the options as it makes for better resale and you never know what the resale market may look like in five years.
For example, buying a base model Rabbit (aka Golf) with basic options will yield you a bit of equity if you take care of it; however, in most markets your well kept base model will be punting against the horde of the Rental Fleet to potential buyers who, like you, don’t like to haggle over price. Cheaper equals better.
If however, you were to purchase a GTi or R32, and you keep it in good nick, you’ll have a very select market of car guys like myself who always wanted that model and am willing to pay a little more for a sweet bit of kit.
There are exceptions to this rule. There won’t be much of a difference to buying the base model Dodge Avenger SE to the SXT or R/T. You’ll get very little return on that investment regardless of how well kept it is. Literally the car that Al Bundy would drive to the shoe store career.
“keep it in good nick” “a sweet bit of kit”
Your Indian name is “Hangs With Limeys” :-D
Every high school should be required to teach a “Financial Reality” class and make it a requirement for graduation. How to establish and take care of your credit, living within your means, the importance of a viable trade/college degree, how compound interest works, etc. Would be a lot more valuable than fine art history or French class.
Living above your means and over extending yourself financially alwasys ends the same. In simple terms, you have to make more or spend less. You can’t escape financial gravity, no matter how hard you try.
Not everyone attends High School.
Financial concerns are not interested in a sophisticated consumer base, it makes taking their money much more difficult.
You’re implicitly assuming that the purpose of high schools is to educate or somehow prepare young people for their adult lives.
You’re also assuming that everyone would benefit from such a class. There is a serious portion of the USA population that struggles to do simple things like read and comprehend a newspaper article or review a utility bill for accuracy. Like 20% – and that’s not me being flippant, that’s a reality.
Like I said, some will win, some will lose. That’s the way it will always be.
If you can use someone else’s money for 84 at 0% why wouldn’t you? I think the whole thing about what other people should do with their money is kinda sick. If I can afford it and I am not in your pockets for the money pardon my french but piss off.