Article on vehicle price

[supton]

Ward's Auto

Since this is more financial than automotive I put it into off-topic.

Quote:
U.S. median-income car buyers can reasonably afford only about half the current $30,339 average transaction price for a new vehicle, according to Requisite Press, a financial-data tracker.



meaning the maximum affordable price for a prudent consumer is $15,795, based on a median income of $53,043.


Quote:
The index is predicated on a prudent buyer following the so-called 20-4-10 auto-financing rule. That calls for a minimum 20% down payment, maximum 4-year loan term and monthly payments of no more than 10% of gross household income.


Something I thought was interesting, but I'm not sure it's actually true--I'm sure most of these buyers will still trade just as often.

Quote:
Some lenders worry about extending loans to the likes of 84 months because it increases the chances of some borrowers defaulting. Dealers dislike stretched-term loans, saying they take consumers out of the market too long.

 

[SwampSurvivor]

84 month loan? Wow.

Judging by how much people finance, I'm looking at my next vehicle wrong. I was hoping to pay cash for a Versa/Spark/Mirage base model in a few year. I really wish people would start buying the cars they can afford, not the cars they want.

I think I did something like 40% down on the Focus. Never again.

 

[99Saturn]

I'm curious to what the relevance here to price below MSRP here rather than lowest price of acquisition or something else.

On the loan term - I was shopping for a new to me car over the last year and looked at an '06 Ion. As the story unfolded, the person apparently had 1 or more years in payments left (and had already leased a new car). Shocked me but I guess it's pretty common.

Add: I will say on financing, if someone is doing something better with the cash a longer term makes sense to me given interest rates are low. I wouldn't necessarily advocate 84 months but the rate when we looked at 3yr vs 5yr term was not that much different. My only concern was the value vs. loan given the miles we put on.

 

[Shannow]

Zero interest for somewhere between 1/3 and 1/2 a decade on consumer items that the majority of users replace inside 18 months makes "essentials" like second and third cars with 7 year loans seem more realistic (albeit nonsensical to most of us)

 

[bepperb]

If the interest rate is good I don't see why a 7 year loan is a terrible financial decision. It's not like a 7 year car is a liability when the average age of a car on the road is close to 11 years. You're doing worlds better than someone who leases a car for three years, then needs to take a loan to buy out the lease.

 

[IndyIan]

Originally Posted By: bepperb
If the interest rate is good I don't see why a 7 year loan is a terrible financial decision. It's not like a 7 year car is a liability when the average age of a car on the road is close to 11 years. You're doing worlds better than someone who leases a car for three years, then needs to take a loan to buy out the lease.

But are you taking the 7 year loan for the $16k car, or to be able to "afford" the $30k car?
I do see lots of people at my work buying more vehicle than I think is prudent with their income and how you finance it doesn't reduce the price you are paying. And I see some of the same people going into retirement still paying a mortgage, which in our area isn't necessary.

 

[zzyzzx]

Originally Posted By: Miller88
84 month loan? Wow.


Still better than a lease, which is roughly the equivalent of an interest only home loan.

 

[zzyzzx]

Originally Posted By: bepperb
If the interest rate is good I don't see why a 7 year loan is a terrible financial decision. It's not like a 7 year car is a liability when the average age of a car on the road is close to 11 years.


Using your numbers, someone getting a 7 year loan for a car they keep for 11 is still making monthly payments most of the time.

 

[hattaresguy]

Most people overspend on cars, but that's OK I need a good steady supply of renters.

84 months on a car loan is insane, that's a good short term note on a rental property not a vehicle.

 

[SwampSurvivor]

Originally Posted By: zzyzzx
Originally Posted By: Miller88
84 month loan? Wow.


Still better than a lease, which is roughly the equivalent of an interest only home loan.


I agree there - leasing is just renting a car. You end up with nothing at the end of the day. And the manufacturer (dealer) turns around and sell it for nearly what the MSRP was new.

 

[bepperb]

Originally Posted By: hattaresguy
Most people overspend on cars, but that's OK I need a good steady supply of renters.

84 months on a car loan is insane, that's a good short term note on a rental property not a vehicle.



That would be my definition of overspending on a car, when your other financial and life decisions are limited by it. Still I don't see how an 84 month loan makes this necessary. Buying or leasing a new car every three years, IMO, is more likely to make this occur than taking a long loan on vehicle you plan to own long term. Then maybe I'm optimistic on the interest rates for these loans and the types of people taking them out.

 

[surfstar]

If people weren't so insecure and wanting to fluff their ego, they would be much better off financially.

"I got a 2% raise! Lets blow it all and then some on a new Lexus!!!"
"I deserve it"

Its ingrained in our culture, thanks to Madison Avenue.

 

[bepperb]

Originally Posted By: surfstar
If people weren't so insecure and wanting to fluff their ego, they would be much better off financially.

"I got a 2% raise! Lets blow it all and then some on a new Lexus!!!"
"I deserve it"

Its ingrained in our culture, thanks to Madison Avenue.


I don't think that's fair. People take out loans to buy new cars for the wrong reasons... sometimes. People also might take out a loan on a prudent new car because they are not technically savvy and are tired of paying for repairs. Or because they have new needs (children) or want something safer. And it's not necessarily ego either. If I was the only person left on the earth I'd much rather drive around in a new Lexus than a used Yugo, ego having nothing to do with it.

 

[hattaresguy]

Originally Posted By: bepperb
Originally Posted By: hattaresguy
Most people overspend on cars, but that's OK I need a good steady supply of renters.

84 months on a car loan is insane, that's a good short term note on a rental property not a vehicle.



That would be my definition of overspending on a car, when your other financial and life decisions are limited by it. Still I don't see how an 84 month loan makes this necessary. Buying or leasing a new car every three years, IMO, is more likely to make this occur than taking a long loan on vehicle you plan to own long term. Then maybe I'm optimistic on the interest rates for these loans and the types of people taking them out.



The only time I can see buying a vehicle with loan terms like that is in the case of a very expensive vehicle.

IE if your buying a Ferrari 458 OTD say for $280k than yes I would probably finance it long term.

Two reasons:

1. If your that financially sophisticated your probably getting a good return on your money so why lock it up in a car?
2. Those cars hold their value so if you flip it in a year your not upside down, might even make money.

But for a normal car, lets say a $25k Accord, NFW you can't afford it if you have to stretch the payments out that far.

People tend to forget that certain loan's are financial tools that make sense in some situations but not others. Its just like pulling a 10mm wrench out of the tool draw, it's not always the right tool for the job, but when you need a 10mm wrench it works very well.

Leasing is another example, in some situations it makes the best sense, in others its abused to purchase more vehicle than could otherwise be afforded. Same with mortgages, 5/1 ARM's make great sense for sophisticated people who use them properly, but not for the average home buyer.

I continually see this trying to get people financed for mortgages, to much car, to much CC debt, to much student loan debt, and not enough income. When you finance that Accord for 84 months you can't even tell them to come back in a year or two when they pay a car note off, because they will never pay the car off...

 

[javacontour]

It's my fault. I make multiples of that income and spend 10-30% of the affordable figure for my cars. I'm depriving someone of an affordable used car

 

[SwampSurvivor]

Originally Posted By: hattaresguy
Originally Posted By: bepperb
Originally Posted By: hattaresguy
Most people overspend on cars, but that's OK I need a good steady supply of renters.

84 months on a car loan is insane, that's a good short term note on a rental property not a vehicle.



That would be my definition of overspending on a car, when your other financial and life decisions are limited by it. Still I don't see how an 84 month loan makes this necessary. Buying or leasing a new car every three years, IMO, is more likely to make this occur than taking a long loan on vehicle you plan to own long term. Then maybe I'm optimistic on the interest rates for these loans and the types of people taking them out.



The only time I can see buying a vehicle with loan terms like that is in the case of a very expensive vehicle.

IE if your buying a Ferrari 458 OTD say for $280k than yes I would probably finance it long term.

Two reasons:

1. If your that financially sophisticated your probably getting a good return on your money so why lock it up in a car?
2. Those cars hold their value so if you flip it in a year your not upside down, might even make money.

But for a normal car, lets say a $25k Accord, NFW you can't afford it if you have to stretch the payments out that far.

People tend to forget that certain loan's are financial tools that make sense in some situations but not others. Its just like pulling a 10mm wrench out of the tool draw, it's not always the right tool for the job, but when you need a 10mm wrench it works very well.

Leasing is another example, in some situations it makes the best sense, in others its abused to purchase more vehicle than could otherwise be afforded. Same with mortgages, 5/1 ARM's make great sense for sophisticated people who use them properly, but not for the average home buyer.

I continually see this trying to get people financed for mortgages, to much car, to much CC debt, to much student loan debt, and not enough income. When you finance that Accord for 84 months you can't even tell them to come back in a year or two when they pay a car note off, because they will never pay the car off...


I have a feeling the student loan one is going to get me when I try to get a house.

 

[supton]

Are people financing Acords for 84 months? I just assumed was the $50-60k or more SUV's etc.

 

[IndyIan]

Originally Posted By: supton
Are people financing Acords for 84 months? I just assumed was the $50-60k or more SUV's etc.

People finance $5k beaters for 84 months at silly interest rates...

 

[99Saturn]

Just my

- there's a big difference between financing $25K for a window (however long it is) because that is the only way one can afford the car (however you define afford) vs. financing because someone can finance, and would like to do something else with the $$$. A long loan term doesn't have to mean the person can't afford the car today.

IDK what the going rate is for 84 months, I know Penfed is advertising 72 months at a 2.24% APR. If someone has the $25K up front, seems like they should be making a decision between avoiding the $1,740 in interest and paying upfront, putting their money to work and beating the $1,740 in interest over 6 years, or something in between.

 

[Vikas]

Quote:
if your buying a Ferrari 458 OTD say for $280k than yes I would probably finance it long term.
I think you are wrong; people who purchase Ferrari 458, don't need to finance it.