Posted on 03/20/2015 7:13:12 AM PDT by nascarnation
In the past, six-year auto loans were few and far between. Today, more of those loans are being issued, with seven- and eight-year loans gaining popularity.
NPR reports such loans are helping to fuel a boom in U.S. new-car sales, with one-third of the loans lasting 74 months and beyond. AutoPacific analyst Ed Kim says the cars are one of the reasons for the long loans:
Consumers are demanding a lot more technology in their vehicles, infotainment technologies. There’s also a lot more safety features that are in vehicles right now. Emissions and efficiency technology that are in vehicles right now, that are making vehicles cost a lot more.
Kim adds that the main driver is that most consumers are still crawling out of the Great Recession, which Experian Automotive’s Melinda Zabritski says isn’t much of a problem as far as lending goes. She says that while it would be sensible to take on 36- or 48-month loans on a new vehicle, “the average consumer just can’t afford that.”
Critics counter that the long-term loans could hurt consumers and automakers alike in the near- and long-term. Consumer advocate Mike Sante states that those who are taking out those loans have no business doing so in the first place, and should buy a less expensive new or used vehicle with a loan of no more than four years. Honda Executive Vice President John Mendel, whose company offers 36- and 48-month loans, says loans beyond five years are too long, and adds that he hopes his competitors come to their senses.
Welcome to the 0Zero economy. It sucks out here in the real world.
More advice from our parents being cast aside. My dad used to say, you should get a three year car loan. He thought four years was the maximum if you need to stretch out and lower the monthly payment. Otherwise , he said, you can’t afford the car.
Such wisdom is seemingly gone with the wind nowadays.
Four years or so out....all these loans will be so far underwater..
8 year loans. My, my
New entitlement program- ObamaCar. Free of course.
I know a young fellow who is a salesman at a local Toyota dealer. He tells me he has lots of customers every day but very few who can qualify for credit. Spends 90% of his time working credit deals and 10% actually selling cars.
If someone can't successfully finance a new car at those rates and term, I think they should downgrade until they get to a point where they can.
Off topic perhaps, but I sometimes wonder how so many people afford vehicles such as Lincoln Navigators. I’ve sometimes done quick back of envelope calculations and figure monthly payments would be like a house mortgage. Then I see some trashy looking people in those cars, and I really wonder, how the heck can they afford such a vehicle.
People are holding their cars longer too. The whole math of the situation has changed, used to be a 3 year loan for a 4 or 5 year car, now it’s a 5 or 6 year loan for a 10+ year car.
I don’t know how anyone would think a six or eight year loan made sense, either as the borrower or the lender. If you have to borrow so much that you can’t pay it back in three (at most four) years, you can’t afford that car.
Car loans are underwater the minute you drive off the lot.
Actually, it makes sense because cars are built better, lasting longer and people no longer are trading them in every 3-5 years. Last one I had was 14 years old and I still sold it within 36 hours of a Craig’s list listing; a 1997 Honda Accord.
Many people today would rather go into the never never card and show off driving their fancy new vehicle or have that expensive furniture or even have that big house than rather live debt free and have no stress
That depends on the down payment..
That’s a good point.
There are far more vehicles on the road > 200,000 miles these days.
I’m still uneasy over this trend though.
Around here there are people driving new pick up trucks and vehicles while living in that crap trailer.
I am stunned at how many people drive a vehicle costing hundreds a month and yet live in trash.
All my vehicles are paid off so is my house, small house, average vehicles and debt free is better than living in debt
These loans have been around a lot longer than indicated.
Good used cars are also expensive, and those loans have been getting longer too.
People get advice not to lease, so instead they get longer loans and end up just as bad. There’s also the obvious change in the vehicles themselves. Using ‘rules’ for auto buying that were common sense when cars were junk at 100k miles don’t make sense when cars are relatively nice at 200k miles.
Car price increases outpace inflation because of the increased regulation on vehicles. Get rid of the regulation, prices can drop as market forces take over.
For example, airbag systems will add a couple thousand to the cost of a new car. If they were optional, the market would drive the cost to a better price. Now, manufactures can basically charge what they want for the system, as long as the total cost of the vehicle doesn’t drop their market share.
For folks starting out in life (read - not much money), that thousand or two can make a big difference. Being able to actually get a car, makes it much easier for folks to improve their lives because otherwise, their time is too consumed w/bus rides, etc..
For myself, if it was optional, I would’ve gotten a non-airbag car when I was starting out. Only getting airbags when my income improved (if even).
It does suck, but at some point you have to take a bite out of t he shit sandwich.
Drove my old car for over 15 years, 10 of those paid off. Reached a point where replacing it was an imperative so what do you do? You find the best deal you can that makes the most sense in terms of taking a gamble. That’s what it is, gambling that the POS Nazi sonofabitch and his party will be gone and maybe there are enough real conservatives in the next cycle to come up with a way to quickly clean up the mess. I don’t hold much faith that will happen but you have to keep moving and without at least no frills transportation that won’t happen.
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