Toyota Gives Customers the Seven-Year Itch
The Wall Street Journal reports that Toyota's captive finance company is increasing the number of 84-month auto loans on its books. "These loans, which carry slightly higher rates than 72-month deals, have risen to represent 4% of all cars Toyota Financial Services lends money on." (This they call writing?) The Journal puts some numbers to that "slightly higher" aside (from 6.9% to 7.59% for 84-month loans, compared with 5.85% to 6.84% for 72-month financing) and ascribes the move to a general desire by automakers to avoid piling incentives on their new metal during the current sales slowdown. Although GM may face blowback for its "anyone with a pulse" zero percent financing deals, Toyota Financial Services is also on the hook for billions. An unnamed ToMoCo spokesmouth told the WSJ that her employer writes loans for about three-quarters of the cars financed at U.S. Toyota dealers, accounting for about 50 percent of total sales. She claimed the seven-year loans are given only to customers with top credit. Yes, well, is this the start of a trend? GMAC Financial Services says 84-month loans constitute a tiny portion of their car biz, and Ford Motor Co.'s credit arm says it "isn't aggressively offering them." "We don't like these loans," Ford Motor Credit Chief Executive Michael Bannister told the Journal. We shall see…
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"Car loan rates are among the lowest you can get, so if you have the cash to buy a car, don’t give it up all at once. Put it into a high-yield account of your choice, get the car loan, and make the payments out of said account. That way, you’ll actually be making money on the finance-rate difference between the bank account and the loan. Don’t throw away your liquid assets without thinking." Not good advice. Those rates can be adjusted downward quite dramatically. I've had a 30 day CD that paid as high as 5.5% last year scheduled to pay only 2.76% starting the 11th. Thankfully, the bank offers to beat any other rate for a similar term CD by .05% so it will be 3.9% for now. But most folks looking at semi-liquid investments will likely have trouble finding anything north of 4% in the times to come, and that's before taxes knocks down the return to a below-inflation rate. There is no reason why someone can't buy a perfectly good, conservatively driven, 7 year old car for $5000. Keep it for seven years (or more), sell it for $1500 and repeat. Tom & Ray Magliozzi from 'Caralk' fame have covered this issue in depth. The best car value in the market for long-term costs remains a seven to nine year old vehicle that has been maintained and driven well.
I'd assume that someone taking out either a 72- or an 84-month loan hasn't fully pondered the implications of their car getting totaled in a collision while they're still paying the loan. Last time that happened to me, I came out ahead $2000 -- 'cause I didn't have no 7-year loan.
PCH, You got the math right, thanks. AND, I made another bad assunption as well. Anyone know how many new cars are NOT financed?
OK, car weenies.... In the real world, where they don't know why the car begins to shake at 60k, payments are all. Really. An interest rate book is foreign to many car buyers. Not all, certainly, but a significant percentage of the market. You are not normal.