New car buyers take out bigger loans, set record

[Danno]

Originally Posted By: Panzerman
What I find incrediable are the number of stupid people who keep trading a car upside down. My sisterinlaw bought a new car and actually said the car dealer paid off her last car and put her in a new car. I was going to try to explain it to her, but hey, why rain on her brilliance.


I helped my 17 year old son purchase a new to him, 2010 Mazda 3. The couple we bought it from were upside down on it by $2,000, which was tacked on to the new vehicle. They left the sales receipt in his car and he gave it to me for return to the owners. He felt that was not the wisest move to sell a car for less than what was owed.
PS I keep my new cars for 8 - 10 years. Northern climate beats the stuffing out of vehicles.

 

[Mr Nice]

Luckily a car in FL can last 20 years.

I'm keeping our Hondas till they die but on separate occasions two people asked if I wanted to sell them. I said no thanks.

One guy was in a brand new Mini Cooper, the other was in a new Camry. Both guys were looking to unload their new car.

 

[oilmaven]

There is a real problem with current new cars being priced out of the average workers reach. I know people that are paying $500-$600 or more per month for their vehicle (for increasingly longer terms). "Ninja"-style auto loans are again increasing...this never ends well.

 

[BTLew81]

Itguy...you make some good points.

Credit score is not an "I love debt score." I know TONS of people who have plenty of cash to purchase a car but finance due to the ROR on current assets and low loan rate they will be receiving. Plus it's true...it helps establish a history.

I finance my vehicles because each time I have bought a vehicle it made sense and the APR was silly low. I usually swap cars frequently, but I have a feeling I will be in the current one for some time. The coolest car is one that's paid off.

I DO NOT agree with banks extending terms to 96 months. Period. The bank I work for goes no longer than 60 months. Plenty long in my mind. We also go no higher than 105% of LTV. While this seems high, many other banks go up to 125% or even more in some cases.

I guess my point is that financing is fine if you're responsible about it. Many aren't. Is it a worse investment than a house now? Well, it used to be, but maybe not so much anymore....

 

[PandaBear]

Cars are more expensive now than before, I was able to get a Corolla in 95 for $13k, it stays that way till around 98, and now it cost $18k or so. Used cars with reputable reliability and good condition are not much cheaper either, I can usually beat 1 year old used car price by buying new and bargain hard, where's that $3k first year depreciation everyone mentioned? They don't exist if you buy a reputable model, they only exist on lower quality mass produced cars that people "trade in every 3 years" for when they get tired of it or when it doesn't age well.

$30k used to get you into a Lexus in the mid to late 90s, it is now going to cost you $40k, and any SUV will probably be around $30k nowadays, and you know how much we as a nation LOVE SUVs.

 

[Panzerman]

I agree the old school of cars having rapid deprieation is over. We have a ever changing world. Around us. Dodge Heavy Duty trucks with Cummins are actually selling used more than they sold new in. 2006. Inflation is out running deprieation. I don't agree on cars and houses/realestate though. The rule of thumb is anything with a title will cost you money, anything with a deed will make you money. Don't make a judgement based on people who took out big loans on houses that were never worth the money. Its the loans upside down, not the houses.

 

[itguy08]

Originally Posted By: Panzerman
Dodge Heavy Duty trucks with Cummins are actually selling used more than they sold new in. 2006.


That's because they don't have the emissions controls on them and those types of engines are in high demand because they are reliable and simple to work on and get good gas mileage. Similar to how 7.3 PowerStrokes are still selling for good money. It also didn't hurt that the Ford 6.0/6.4 was not that great of an engine and a diesel pig.

Quote:
I don't agree on cars and houses/realestate though. The rule of thumb is anything with a title will cost you money, anything with a deed will make you money. Don't make a judgement based on people who took out big loans on houses that were never worth the money. Its the loans upside down, not the houses.


If you add up all the interest, repairs, and maintenance on a house over the life of the typical 15 or 30 year mortgage you will end up loosing money. Especially add up all the little things you do and a reasonable rate for your labor. I think you will be shocked!

A home is a pit you throw money into. Like a car, boat, RV, etc.

 

[Pop_Rivit]

Originally Posted By: LT4 Vette
New car buyers take out bigger loans, Set new record


It's hard to imagine being a slave to those payments for 5, 6 or more years for a depreciating asset.


Originally Posted By: itguy08
If you add up all the interest, repairs, and maintenance on a house over the life of the typical 15 or 30 year mortgage you will end up loosing money. Especially add up all the little things you do and a reasonable rate for your labor. I think you will be shocked!

A home is a pit you throw money into. Like a car, boat, RV, etc.


That might be true for those who have free housing provided for them. But for those of us who, no matter what, still have to provide a roof over our own head it's a material fallacy.

My home, considering that it provides me with a comfortable place to live, is actually fairly inexpensive. The taxes are only about $2500/year, the cost to build it was $275,000, there were no financing costs, insurance runs about $700/year, and I probably invest $500/year in misc. upkeep to the structure each year. So for less than $5,000/year I live in a home that has appreciated to almost $400,000 in the last 18 years.

Adding up all those costs, and tossing in a few others that I'm sure I'm not including, for the last 18 years, factoring in the appreciation of the dwelling, buildings and land values, I've lived here practically free if I were to sell it today.

Add to that I'm not, like sardines in a tin can, crammed into an apartment, and I think it's a pretty good value and it's been a great investment (as have the other homes I've owned).

 

[fdcg27]

I would not pay 30K for any daily driver.
The careful shopper can buy something new that's roomy, reliable and economical with virtually free financing for 20K.
This will give one 10-15 years and 200K+ of utility.
Used cars can be a very good buy for the reasonably savvy buyer.
We've had some great used cars over the years, to compliment the new ones.
Bottom line is that I don't think 30K is a reasonable amount to pay for a daily driver car, unless that 30K is no more than pocket change to the buyer.

 

[Panzerman]

The 2006 Cummins are not the Cummins you are thinking of and the emmission equipment can be removed from the new ones fairly easy as soon as the warranty is out. Seriously, a home is a money pit? Find me a car, you can live in for 30 years and sell it for more than you paid and Ill believe that. Cars are a disposalable device, Land/Property is not.

 

[outoforder]

Originally Posted By: BTLew81
Itguy...you make some good points.

Credit score is not an "I love debt score." I know TONS of people who have plenty of cash to purchase a car but finance due to the ROR on current assets and low loan rate they will be receiving. Plus it's true...it helps establish a history.


I don't understand why anyone with the means to pay cash would finance a car. That's just giving money away to the bank. You don't have a pay interest build a credit history. I have a 780 I love debt score and have only carried one loan in my life (student loans for 3 years, paid off in 2006). Never have carried a balance on a credit card or financed a car. Debt is dumb, cash is king.

 

[itguy08]

Originally Posted By: Panzerman
The 2006 Cummins are not the Cummins you are thinking of and the emmission equipment can be removed from the new ones fairly easy as soon as the warranty is out. Seriously, a home is a money pit? Find me a car, you can live in for 30 years and sell it for more than you paid and Ill believe that. Cars are a disposalable device, Land/Property is not.


Find me a house that after 30 years of mortgage payments (and the resulting interest), all the repairs, renovations, and time that goes in it along the way is a net positive. The interest alone comes close to doubling your original principal. And that's not counting the roofs, HVAC, Water heaters, kitchen/bath remodels, etc that you will have to do along the way to get your $$ back out. You're not going to get top dollar for a house with a 1983 bathroom or kitchen today so you will pump money into it.

 

[itguy08]

Originally Posted By: outoforder

I don't understand why anyone with the means to pay cash would finance a car. That's just giving money away to the bank.


If I can earn more in my investments (totally doable in the stock market) and you get 0-2% financing it's better to pay interest as the net is positive. If things get tough you can pay off the loan with your investments.

 

[antiqueshell]

I'm waiting for the other shoe to drop on these huge and very long term loans.....Something tells me this is going to be a little like the housing bubble....

Plenty of people buying things they CANNOT afford and likely also can't make the loan payments on in the long term...

Wait for the deluge of repos in the next few years...going to be a HUGE influx of late model used vehicles on dealer lots soon.

US economy due to crash and burn in the next couple of years .

 

[Cutehumor]

alot of banks will need to be BAILED out again for these car loans bad busines practices.

 

[JHZR2]

Originally Posted By: Pop_Rivit

My home, considering that it provides me with a comfortable place to live, is actually fairly inexpensive. The taxes are only about $2500/year, the cost to build it was $275,000, there were no financing costs, insurance runs about $700/year, and I probably invest $500/year in misc. upkeep to the structure each year. So for less than $5,000/year I live in a home that has appreciated to almost $400,000 in the last 18 years.

Adding up all those costs, and tossing in a few others that I'm sure I'm not including, for the last 18 years, factoring in the appreciation of the dwelling, buildings and land values, I've lived here practically free if I were to sell it today.

Add to that I'm not, like sardines in a tin can, crammed into an apartment, and I think it's a pretty good value and it's been a great investment (as have the other homes I've owned).


Your analysis is highly flawed though even for 99% of the responsible, debt free population, let alone those who desire to live on payments for the rest of their life.

You claim no financing costs. Without paying effectively double the home value via mortgage interest, most anyone can come out ahead, even if the property doesnt appreciate.

An apartment is a silly comparison because who wants to live in such a place long term. But one can rent a home in a nice suburb (like where I live) or out in the boonies (like where you apparently live), and if the owner was in at a good cost point, can do so very cost effectively. Still, a good deal of money goes out for a half decent place, and after years and years, one ends up with nothing - the equivalent of paying an entire mortgage and the home depreciating to zero.

The challenge for most everyone is to NOT be stuck paying interest on a full term 15yr or 30yr. Because it is a LOT of money. It is easy to come out way ahead if not paying mortgage interest. IMO you would still come out ahead owning with minimal interest cost (like a 3% 15yr mortgage paid off in five like we are doing), because all the other stuff, the upkeep, taxes, etc. HAS to be included in any rent paid... So for an analogous rented property, those costs all mustbe the same, as the landlord would not be losing money.

I would agree that it is far better than renting and has the potential for appreciation, though it is more likely akin to a forced savings account until paid off.

 

[apwillard1986]

If people work and make their own money they can buy whatever they want however they want. I wouldn’t apologize to anyone for how I spend my money and I don’t expect anyone else to apologize to me.

What people live in or drive doesn’t make me a dollar difference so I choose to continue to focus on myself and my family.

 

[KrisZ]

This is an interesting quote from the article:
Quote:
Automakers and lenders noted the increase in subprime loans is normal and does not mean the industry is funding new car sales with shaky loans that will ultimately wind up in default. In fact, auto loan default rates have held in check over the last year.


Hmm, when have I heard this before...? We all know what happened next...

For me, all my cars are paid for. My Mazda 3 was financed mainly because we were saving for the house down payment, but I did put in a healthy down payment on it to avoid being upside down on the loan. Focus was bought with cash. Future cars will most likely be bought with cash as well. Nothing beats being payment free.

 

[Tdbo]

Originally Posted By: itguy08
Originally Posted By: outoforder

I don't understand why anyone with the means to pay cash would finance a car. That's just giving money away to the bank.


If I can earn more in my investments (totally doable in the stock market) and you get 0-2% financing it's better to pay interest as the net is positive. If things get tough you can pay off the loan with your investments.


+1. IMO, it gets tiring to hear the holier than thou canned response about people financing cars. There are a number of variables that play in the decision.

This past December, I purchased a new leftover 2012 Honda Accord. I bought the car for $100. more than KBB used value at the time. Honda was using .9 financing up to 60 months as an incentive at the time (I ended up with the $1750. dealer cash thrown in as well.) I keep a separate car account and had $7500. in it at the time. I used this as a down stroke (36% of the OTD price) and financed the rest for a total cost over 4 years of $275. I could have raided my emergency account that I keep liquid, but more than likely would have cashed in some of my mutual funds for the $13.3K difference. I don't have the printout in front of me, but I know that I made at least 6% on them last year . Using 6% as a figure,(that's almost $800. in one year plus I have conserved my capital.) In other words, I would make $2400. in the four years of the loan, and conserved my capital, at a cost of $275. I would have not received any more of a discount on the car whether or not I used the financing, the dealer was already -$1360 in the deal because of add-ons they could not remove from the car. Someone explain to me what is so stupid about that.

The loan is not going to break me, I have resources on hand to not only make the loan payment, but to pay off the car in full anytime I wish. However, at that kind of financial spread, why would I want to? I bought a year old new car, at an excellent price. The car is probably beneath my means (I could afford to drive more car than I do.) This car replaced a 12 year old car with 275K and I will probably own this one at least 8-10 years.

If the original comment regarded people living beyond their means and going out and buying bling mobiles to enhance their so called status without the financial resources to tote the note, then I totally agree. Some people blow money on booze, smokes and broads, others blow theirs on fancy cars. It wouldn't be my choice , but who am I to judge.

 

[Panzerman]

Originally Posted By: itguy08
Originally Posted By: Panzerman
The 2006 Cummins are not the Cummins you are thinking of and the emmission equipment can be removed from the new ones fairly easy as soon as the warranty is out. Seriously, a home is a money pit? Find me a car, you can live in for 30 years and sell it for more than you paid and Ill believe that. Cars are a disposalable device, Land/Property is not.


Find me a house that after 30 years of mortgage payments (and the resulting interest), all the repairs, renovations, and time that goes in it along the way is a net positive. The interest alone comes close to doubling your original principal. And that's not counting the roofs, HVAC, Water heaters, kitchen/bath remodels, etc that you will have to do along the way to get your $$ back out. You're not going to get top dollar for a house with a 1983 bathroom or kitchen today so you will pump money into it.
I am Originally from PA, so I can see how your view works, as property values dont really do anything drastic up there. Location, Location, Location. I now own a house 3 miles from the beach. I paid a good price for it and my interst is low, just like anything else, if you pay too much, it isnt going to span out. I bought the house in 2002, my pay off is in 2018, at 5.25% interest, I am not ever going to lose money on this house, I got in under the bubble. My point is though, after 2018, I will have nothing but taxes, insurance and maintence costs. I could not rent this house for my house payment now, I shed the house payment in less than 5 years, now the ratio will change drastically, where if I was a renter, I could only look for rates to increase as population grows. Everybody situation is different, but I am married with kids, stable and have no real desire to relocate(once was enough, from PA). I see the whole thing as a long term no brainer.