By on April 9, 2013

When Lee Iacocca was a Ford regional manager, he helped pioneer auto loans. Consumers could buy a 1956 Ford for 20% down and $56 a month. The loans were paid off in just 36 months. In the final quarter of 2012, the average term of a new car note stretched out to 65 months, says Experian. 17% of all new car loans in the past quarter were between 73 and 84 months. A few were as long as 97 months. This trend bears huge risks for consumers and industry, says the Wall Street Journal.

The average price of a new car is now $31,000, up $3,000 in the past four years. To keep payments under $500 as month, loan terms get longer and longer. Says the Journal:

“Such long term loans can present consumers and lenders with heightened risk. With a six- or seven-year loan, it takes car-buyers longer to reach the point where they owe less on the car than it is worth. Having “negative equity” or being “upside down” in a car makes it harder to trade or sell the vehicle if the owner can’t make payments.

Car makers have mixed feelings about long-term loans. They allow consumers to buy more expensive—and profitable—cars. But long loans may keep some people from replacing their cars, cutting into future sales.”

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146 Comments on “Car Loans: The Borrow Time Gets Longer And Longer...”


  • avatar
    Sgt Beavis

    That is just insane.

    However, interest rates are equally insane. My credit union has 72 month or shorter term loans for 1.99%. https://www.itcu.org/personal/rates/vehicle-loans.

    I got a 60 month loan on my 2012 F150 at 1.99%, but I’m dumping cash on it to pay it off by the middle of next year. I dumped a heap of cash on my wife’s 2010 Equinox and paid it off a year early. Frankly, I’m done with financing cars. I’ll be saving for my next vehicle and it’ll probably be pre-owned.

    • 0 avatar
      jmo

      I got a 60 month loan on my 2012 F150 at 1.99%, but I’m dumping cash on it to pay it off by the middle of next year. ”

      Why?

      • 0 avatar
        KixStart

        That’s a good question. 2% is insanely cheap, take advantage of it.

      • 0 avatar
        Syke

        Because there’s something incredibly annoying about being in debt? Welcome to why I’ll probably never be able to own a new car again – my ability to save in advance and pay cash can’t keep up with the increasing sticker prices.

        • 0 avatar
          chrishs2000

          “Because there’s something incredibly annoying about being in debt”

          The problem with a college eduation is that this statement is both completely true and completely out of your own control. My debt is necessitated and it would actually be stupid for me to save a dime instead of paying down my loans. All of my student loans have higher interest rates than any car loan would – hence I drag the car loan out as far as possible to pay off more on my srtudent loans.

          • 0 avatar
            Power6

            So getting a good deal on a loan product makes it a wise financial move to buy a hugely depreciating asset. Not sure I folow that flawed logic.

            Here is a hint at the flaw: the interest is the least of your costs of buying a new car. I’ll let you work out what the biggest cost is.

        • 0 avatar
          krhodes1

          Why? These are “free money” rates. Compared to the cost of the vehicle, the finance charge is rounding error. One major repair on a used car will wipe out any savings. The ONLY reason I will pay both of my financed cars off early is that I refuse to make payments on a car with no warranty, so they will get paid off when the warranty is up.

          • 0 avatar
            Reino

            The S&P500 has gone up 30% since January 2012. I’d say by ‘dumping cash’ on a 1.9% return, you’ve really missed the boat.

          • 0 avatar

            Glad to see people in here that get it…

            Say you have $30K saved up to spend on the car. Would be great to just buy it outright, correct?

            You spend the $30K and now you have a car.

            …or… You could get a low interest, long term loan and pay the car off in 72mo @ 1.49% interest. You’ll end up paying the financier $31,379.76. $1,379.76 more than if you just paid it outright.

            What if you kept the $30K in a 1.99% interest yielding account (my checking account currently earns this rate) instead of buying the car outright? You’d have $33,801.32 in that account. Subtract the interest you paid to the financier, and you are still ahead by $2421.56.

            What if you put the $30K in a 1.99% interest yielding account, and pulled out the monthly payment? You will have a paid off car and $516.66 left in the original account.

            If entities are going to give away “virtually free money”, take advantage of it.

    • 0 avatar
      Summicron

      “I’ll be saving for my next vehicle and it’ll probably be pre-owned.”

      I’m converting to that attitude principally because everything brand new is an abomination to me. We’ll probably buy one more new vehicle as the in-town gas-sipper my for wife’s commute to a local college (she’s 4’11″ and doesn’t share my hatred of these squashed greenhouses), but my next vehicle will likely be a CPO minivan.

    • 0 avatar
      28-Cars-Later

      Stay the course friend, debt hurts your credit score and your overall financial position.

      • 0 avatar
        jmo

        Huh? You have $25k that could be earning 3.2% and you should use that to buy a car so you can avoid 1.9% interest on a car loan? In what world does that make sense?

        • 0 avatar
          krhodes1

          Exactly. And if you have good credit sub 1% financing is easily obtainable. Get while the getting is good, these rates won’t last forever.

          Debt does not harm your credit score, at least for this sort of loan. Too high a ratio on credit cards will, but not car or home loans. Payment history is the key.

        • 0 avatar
          Sgt Beavis

          It won’t matter if you lose your job and can’t make the car payment or your mortgage.

          Sometime next year I won’t have that concern when it comes to my cars. A few years after that the house will be paid for as well.

          I really don’t care what the interest rate is, I’m of the mindset that debt is not good because it makes you beholden to someone else. I’d rather live life on my terms as much as possible..

          • 0 avatar
            jmo

            Sgt,

            You have 200 shares of Chevron that are up 18% in the past year and have a 3.4% dividend yield and are worth $25k.

            You think it’s better to sell that and use it to buy a car rather than just go with Honda’s 0.9% financing?

          • 0 avatar
            chrishs2000

            That’s a commendable attitude, but it’s completely neglecting the fundamentals of opportunity cost. Personally, I want to make as much money as I possibly can before I retire.

          • 0 avatar
            redav

            “It won’t matter if you lose your job and can’t make the car payment or your mortgage.”

            Not really. For example, if you have funds to pay cash for a car, but chose to finance part of it, you still have those funds available in case of a job loss. Conversely, using all the fund to buy the car with cash & then losing your job leaves you with a paid-off car but no money.

        • 0 avatar
          ect

          Interest income is taxable at ordinary rates. Interest expense on car loans is not tax-deductible. If your combined (federal/state, or federal/provincial) marginal tax rate is 35%, the net difference between investing at 3.2% or paying off debt that costs 2% is effectively nothing.

        • 0 avatar
          28-Cars-Later

          I concede your point of returns vs interest savings, but where are you earning 3.2 percent? CDs? Bonds? Money Market? Not even close. Maybe the right mutual fund or the stock market, and that’s been overbought for some time. Personally I’m for getting all debt down to manageable levels, squirreling a piece of take home into real assets, and then worry about investing the excess if there is any.

      • 0 avatar
        Sgt Beavis

        I already have a credit score above 800. ( ^_^)

  • avatar
    Land Ark

    When people keep touting that these economic times are “tough” I always think about the current price of a standard mid-size car and wonder who is buying these things if times are so tough?
    I am not comfortable with a $30k price for what is essentially, for most, a throw-away car.
    Also, paying more than 48 months for a car would not be something I’m interested in. Back in ’10, when I bought my Subaru I agreed to a 48 month payment plan to keep payments low enough that if some month something came up I could pay just that and be comfortable. I ended up paying it off in about 20 months. I hate having any kind of debt and I wanted to get out from my 3.99% loan.
    A co-worker was having a crisis last week, desperate to buy a Hyundai Veloster Turbo. She already has a lengthy loan for a car she bought just over a year ago and didn’t care what it took or how long the loan was for, as long as it was $350/mo or less she was going to buy it. She was shopping loans for 72 months. Somehow I guess I got through to her, and possibly the dealer wasn’t as willing to work with her right away, she smartened up and decided to be in a better financial situation when she buys…. in a few months.

    • 0 avatar
      carrya1911

      The MSRP on the cars might be 31,000, but I’ll bet that’s not what people are paying. Figure in the money that manufacturers are throwing on the hood and trade-ins and I’ll wager that the money out of pocket is significantly lower than $31,000.

      I’m not sure how far from actual cost MSRP is, but it seems way the heck off from the actual selling price…which means that the pricetag must be getting jacked way up in the same way that “75% OFF!” sales are usually on a ridiculous level of markup. The money the manufacturers are throwing down for incentives have to be coming from this tactic at least in some measure. Take a 25 grand truck, price it at 31 grand and throw a few grand on the hood as an “incentive” so that when the halfway competent buyer shows up he/she thinks she got a real deal.

      I’m open to being wrong on this, so if someone has evidence that the manufacturers who are offering these sizeable discounts are bleeding the sales desk red in the effort to just move metal please point me to it.

      As for finance, it’s insane. In my recent purchase I left with 0.9% on a 36 month loan…and the loan was for significantly less than the trade-in value on the car I handed over. The sales guys kept trying to sell me on the monthly payment to the point where I had to bluntly inform them that I couldn’t care less about the monthly payment. I cared about the amount of interest I was going to pay and how much I was going to finance. I may not have been polite in doing this…but it got the point across.

      • 0 avatar
        Stumpaster

        What you are missing are all the SUVs and minivans and vans that are pushing mid-30s price range, plus all the so-called luxury brands selling a crapload of cars, plus all the leased expensive cars. A frigging Civic is selling for 20K, what do you expect?

      • 0 avatar
        onyxtape

        I’ve had to do the “I don’t really care about the monthly payment” thing many times before in the salesman’s office. Doubly difficult for me as I’m in my mid 30s but the babyface dates me to my early 20s, so I look like I _should_ care about the monthly payment a whole lot more.

    • 0 avatar
      jmo

      “When people keep touting that these economic times are “tough””

      Things are tough and getting tougher for the unskilled and uneducated. However, that still leaves pleanty of affluent new car buyers.

      • 0 avatar
        28-Cars-Later

        Agreed but even for the so called “affluent” the deals just aren’t there… cars are entirely too expensive for what you get. They will still need the same fluid changes, seals, rubber components and maintenance their slightly older counterparts do, but now you pay 20%+ more and the cars got uglier.

        • 0 avatar
          jmo

          “entirely too expensive for what you get”

          They have never been as reliable, safe, fast or better handling.

          • 0 avatar

            That’s true that cars are better than ever, but you started a subthread on the topic of “affluent new car buyers”. They demand more from the car than the basic competency that we take for granted these days. Camry is ridiculously cheap inside, for example.

      • 0 avatar
        raph

        enough “affluent” buyers to keep an entire industry afloat? And by affluent what are you referring to? Its been my observation that people making about 70k or so tend to be the lower middle class sort and people making under 60k or less are effectively poor.

        • 0 avatar
          krhodes1

          Where do you live? San Francisco? Manhattan? $60K a year in my ‘hood is very good money. And Southern Maine is quite expensive in comparison to much of the country.

    • 0 avatar
      DC Bruce

      I don’t think debt is inherently bad or good . . . it’s a question of how you use it. At the moment, with the Federal Reserve dumping money in the economy like there’s no tomorrow, debt is probably a good thing. 3% home mortgages and 2% car loans are pretty good, if you expect market interest rates to move to a more normal 4-6 percent in the next 3-4 years . . . even better if there is significant inflation. OTOH, debt creates a risk that your assumptions about your future cash flow (income) turn out to be wrong, so leveraging up to the maximum debt you can service on your income is risky — and unpleasant — unless you have investments that can be liquidated easily to pay off some of the debt if your income falls. And, of course, if debt allows you to take on “more car than you need” then, it’s a mistake. My sense is that leasing does a better job of encouraging excess consumption than does cheap car loans.

      Speaking from experience, there’s really no reason why one can’t assume that you will own today’s new car for 8 – 10 years, assuming you maintain it correctly. The flip side of that is that you need to purchase a car very carefully — and not on a whim — if you’re going to expect to own it for that long. Certain “features” may become tiresome after years and years, or your transportation needs may change (i.e. increase or decrease in family size).

      If I were buying a car now, I’d seriously consider financing it, even though I don’t have to.

      • 0 avatar
        Pinzgauer

        This is why I am not paying down my 20 year 3.6% mortgage or my 5 year 1.49% car loan. It costs me $700 over the life of the car loan for that financing, and that 21k in my investment account can clear $700 much faster than 5 years, especially if things start to peak up.

        • 0 avatar
          Syke

          Your plans make sense, but I just can’t do it. Having any kind of debt hanging over me just drives me nuts, even with a year’s salary sitting in the bank for emergencies. There’s something really important about having the ability to not sweat a surprise layoff, or, more importantly, dealing with the day you honestly walk into the boss’ office and say, “take this job and shove it” and walk out the door.

          • 0 avatar
            jmo

            So, if you had 200 shares of Chevron with a 3.5% dividend yield and the capital gains upside, you’d feel more secure selling it to buy a car rather than just using the 0.9% financing?

            Wouldn’t you be in a better position to tell your boss to shove it if more of your money was in something liquid?

          • 0 avatar
            Pinzgauer

            I’m pretty good at what I do and havent had an issue finding work even during the downturn. Realistically, it might take me 2 – 3 weeks to have another job if I lost my current one. I have a large emegency fund as well so I’m just not that worried about it. I used to be the opposite but slowly I changed my view. With risk come reward, just have to be sure to manage the risk properly.

  • avatar
    thornmark

    Easy financing is a big reason price bubbles form. Think college tuition, home prices and cars.

    W/o “easy” financing i.e., no money down and artificially low interest rates the prices of all three would be much lower and truly more affordable.

    Seems “margin” buying looms large in stock price bubbles too.

    And how does this end?

    • 0 avatar
      chrishs2000

      The difference is that 95% of car loans involve an asset that is worth more than the loan. Unless car prices crash like housing prices did, it will never be an issue – hence the existence of the repo man.

      As far as education loans, I’m currently hiding under my tin hat until that bubble bursts…they cannot be discharged in bankruptcy, but federal loans are now forgiven after 20 years which is incredibly stupid and breeds irresponsibility.

  • avatar
    eggsalad

    Just like the housing bubble, this is a “chicken and egg” situation. If loans weren’t so cheap and readily available, the price of the average new car wouldn’t be $31k.

    As for me, I’ve had two car loans in my life and I hated writing that check every month. Since 1995, I’ve only driven what I could afford to pay cash for.

    • 0 avatar
      thornmark

      >>Just like the housing bubble<<

      Speaking of which, here we go again:
      http://ochousingnews.com/news/obama-urges-lenders-to-make-bad-loans-to-irresponsible-borrowers-at-taxpayer-expense

      • 0 avatar
        SoCalMikester

        Interesting article, but mostly hearsay due to a lack of credible sources. “Administration officials say…”? Which ones? Who?

        A lot of the problem was people getting greedy late in the game, thinking they can flip properties like the guys on TV.

        Then there are the ones who were suckered into an ARM for low monthly payments.

        And the ones who refinanced for cash back to buy toys, not thinking they might actually have to pay that money back…

        If someone really makes enough money to afford a first home with a 30yr fixed, it shouldnt be an issue.

        But flipping, cash back and ARMs (and similar schemes) are just stupid.

        • 0 avatar
          corntrollio

          Not all ARMs. An adjustable-rate mortgage is a legitimate device when used properly.

          There is currently a 5/5 ARM available from a credit union I like that I would highly recommend to many people who may only own a house for 10-15 years (assuming that owning for that period makes sense otherwise — I discourage people from buying “starter homes”). The rate is absolutely guaranteed to stay quite reasonable through 14 years, 364 days, and quite possibly would be reasonable for another 5 years, if not more.

          The types of ARMs you are talking about are:
          1) the “teaser” ARMs that had a low teaser rate of interest that applied only for the first two years, after which the payments quadrupled and it was quite obvious a priori that the mortgagor wouldn’t be able to afford the normal payment — the idiot buyers thought they’d sell the house for profits by then
          2) Option ARMs, where you had options to pay either no interest or have negative amortization for long periods of time (up to 7 or 10 years in some cases)
          3) anything else with negative amortization or other weird features that made them “affordable”

  • avatar

    With interest rates at all time lows, this is a great way for big lenders (captive) to move metal without lowering the price of the cars or putting cash on the hood.

    Your pay hasn’t gone up. Your taxes have. Health insurance is legalized robbery from a local monopoly.

    You still need a car to get to work.

    Try to buy anything “hot”, and you’ll find an asterisk that means “not the car YOU wanted”. I always find that my cars have that asterisk.

    A six year loan for a car scares me though….by that time most cars have begun the planned obsolence shedding of parts.

    They get the money basically free (thanks, FED), and a loan to you at even 4% is a huge return on money in today’s market. Those of us who got 5% on savings and paid 7% on loans are in a new world where the old rules don’t apply.

    I’m reminded of an old SNL skit where money was necessary for some people but an “in joke” to others.

    • 0 avatar
      carrya1911

      Agree with the “free money” bit. With interest rates as low as they are, there’s no savings instrument you can dump 5 grand into that’s going to have any return of note. But if you’ve got a paid-for car that’s in good shape but you know is one day going to cost you $$$$ to fix and a good credit score, why not use that 5 grand as a downpayment on a new car? With interest rates this low you can finance the remainder for 130 bucks. It’s not quite free, but it’s close.

    • 0 avatar
      KixStart

      “A six year loan for a car scares me though….by that time most cars have begun the planned obsolence shedding of parts.”

      Let’s get real, here. You can very likely drive a car for a decade without too much difficulty, especially if it’s one of the more reliable makes. We’re have a 2000 and 2001 that are doing just fine.

      The powertrain warranty will cover most of the critical parts for 5 of those 6 years and all 6 if you buy a Hyundai.

      The real reason you don’t want to take a 6 year loan is because things change. You don’t want to be upside-down on a car and suddenly discover you need a different vehicle type.

      • 0 avatar
        chrishs2000

        “The real reason you don’t want to take a 6 year loan is because things change. You don’t want to be upside-down on a car and suddenly discover you need a different vehicle type.”

        I’m quite sure that you can sell or trade in a vehicle and get something different, regardless of the note length…

        The REAL reason is that most people just do not keep a car beyond 2 or 3 years anymore. They get bored of it, want something different, etc. That’s why the divorce rate is topping 60% now. I genuinely would like to thank these people for eating the initial depreciation for people like me.

        • 0 avatar
          KixStart

          There’s nothing to be done about people who get bored with a car they bought new after a few years, except thank them for making relatively recent used cars available to me.

          It’s still going to be a problem for you if you are upside down on your loan and your needs (I said NEEDS) change and you are compelled to buy something different.

          As far as the wife goes, I’ll stick with the fully appreciated model I currently have, thank you.

        • 0 avatar
          andyinatl

          “The REAL reason is that most people just do not keep a car beyond 2 or 3 years anymore. They get bored of it, want something different, etc. That’s why the divorce rate is topping 60% now. I genuinely would like to thank these people for eating the initial depreciation for people like me”

          Depreciation on a wife or a car?

          • 0 avatar
            chrishs2000

            Hahaha, both. Depreciated women are easy pickin’!!

            It was a poorly phrased analogy :-p

          • 0 avatar
            highdesertcat

            “Hahaha, both. Depreciated women are easy pickin’!!

            It was a poorly phrased analogy :-p”

            It was spot on! I have two sons who each are on their second marriage, and depreciated women are indeed easy pickings.

            And as far as used women go, my boys tell me that they’re alright; once you get past the used part.

    • 0 avatar
      corntrollio

      “A six year loan for a car scares me though….by that time most cars have begun the planned obsolence shedding of parts.”

      Umm, yeah, I’ve had cars built in the 80s that lasted 20 years without issue, but keep believing that. It means nice used cars for me to buy.

      I stopped taking you seriously when I saw that you capitalized Fed.

  • avatar
    don1967

    Hey, with dirt-cheap interest rates and sky-high used car prices, it isn’t entirely kooky to finance a reliable new car for 6 or 7 years and then drive it a few more years payment-free. The sting of initial depreciation is amortized over many years, and pays dividends in the form of a known service and accident history.

    Smart Alternative #1 is to buy a used creampuff, which these days saves you shockingly little money and still must be financed; usually at a higher rate than a new car.

    Smart Alternative #2 is to buy an older sled and spend your weekends combing junkyards for cheap parts. Looks good in a TTAC forum; not so good for the majority of people who have a life outside of cars or who need something presentable for business use. Especially in the rust belt where cars have a limited service life.

    As unfashionable as it might be to play along with the central bankers’ plot to punish savers and reward borrowers, the truth is that it does work for consumers who manage it prudently.

    • 0 avatar
      Stumpaster

      In today’s used car prices Smart Alt 1 is not very smart.

      • 0 avatar
        chrishs2000

        …maybe if you don’t currently have a vehicle. But if you do have a vehicle and are getting rid of it, those “sky high used car prices” work both ways.

        My wife bought an ’04 Accord in 2009 at the depth of the recessing when no one could move metal for $7400 CPO with 92k miles. Last month she sold it for $6850 with 150k miles. If $550 for an Accord EX-L for 4 years and 60k miles isn’t the screaming bargain of the century, I don’t know what is.

        • 0 avatar
          don1967

          Kudos to your wife, but her success on the Accord doesn’t justify buying another CPO vehicle at 2013 prices. High CPO prices only work one way… for the seller.

        • 0 avatar
          sgeffe

          OTOH, I just traded a 2006 Accord EXL-V6 NAV which, IMHO (and my broker’s) should have been good for $10,000–57,800 miles, like new. (All of the major used-car valuation sites cited about that same expected trade, if not higher.)

          To my dismay, I only got $8,600!!

          In my case, a shocking profit for the used-car dealer who threw me that lowball.

      • 0 avatar
        28-Cars-Later

        Agreed, I’m so happy I bought mine in 2010 before things got out of control.

        • 0 avatar
          chrishs2000

          If I had known, I would have invested in used sports cars in 2009. They were being given away, especially here in Michigan with such a huge amount of layoffs in a short time frame. I know a guy who bought 3 waterfront properties on Lake Michigan from laid off auto industry executives in ’09 for a total of $200k…he made his money back in less than 24 months renting them out, and they’re currently worth north of $1.5m. Recessions are where the real money is made.

          • 0 avatar
            corntrollio

            “If I had known, I would have invested in used sports cars in 2009. ”

            Almost any car then. Lightly used luxury cars were going for stupid-low prices a few years ago.

  • avatar

    What kind of problems will this create in the long run? Sure, they can move some cars now, but when people are still upside down four or five years down the road, are they really going to roll that earlier loan into another? People are going to be stuck driving cars longer than they want to.

    The other thing I can see happening are the high risk buyers using a car for a few years and then getting it repossesed in a few years when something goes wrong that they can’t afford repair. The manufacturers would be smart to roll some extended warranties into ther financing…

    • 0 avatar

      This is the real reason so many car makers have “free service” as part of the deal. I’m sure a significant percentage of folks either intentionally or negligently did zero oil changes, etc, as “its a lease and goes back in a year…who cares ?”

      I’m sure the captive finance arms have calculated that a few free oil changes pay back in CPO customers NOT getting new engines on the manufacturer’s dime.

      • 0 avatar
        mike978

        I thought the key reason for offering free service was to get people into the habit of using a franchised dealer for their service needs. I recall some time ago on autonews that dealers had said that once a person buys a car they usually don`t come back for servicing. This is something the dealers want fixed and companies like Toyota and GMC are now offering free servicing.
        As for the leasing aspect, I agree some were probably not doing it but I thought it was a requirement of a lease to get routine maintenance done, or be charged for it when you turn the car back in.

        • 0 avatar
          danio3834

          “I thought the key reason for offering free service was to get people into the habit of using a franchised dealer for their service needs”

          You’re more correct with your supposition than speedlaw, but there are multiple advantages.

          If they can get the customer in the door for the “free” maintenance, they have a chance to sell them on other, not free items. It also gives them a chance to inspect the vehicle for any warrantable defects, perform any updates, recalls, service bulletins which the manufacturer may pay for.

          It also allows them to build a relationship with the customer. If the dealer does an exemplary job of satisfying the customer when they’re in warranty, they’re more likely to stay with the dealer once the warranty is up.

          The more the customer visits, the more likely their name and address is going to be up to date for direct marketing purposes as well.

          Any customer who intentionally neglects the maintenance on their lease vehicle is rolling the dice. If the vehicle was obviously run out of oil and experiences a related failure, they’re still on the hook for it.

    • 0 avatar
      don1967

      For the manufacturer it is probably better to sell one high-margin car every ten years, along with the replacement parts it will need, than to sell a low-margin car every five years.

      Where it becomes unattractive of course is the $15,000 stripper special going onto a 10-year replacement cycle. But how often does that happen? These are always the first cars to get dumped as soon as the owner gets a raise.

    • 0 avatar
      thornmark

      >>What kind of problems will this create in the long run?<<

      See Mitsubishi. See home loan crisis. See college loan crisis.

      • 0 avatar

        Excuse me, but what about Mitsubishi? Buyers avoid buying their products because they don’t have anything except Evo and maybe Outlander sport. No sedan, no big cross-over, no truck, no minivan. Might have Mirage coming back as a subcompact, but meh. Their corporate money trouble has nothing with their products and service network.

        • 0 avatar
          thornmark

          I guess you missed it but Mitsubishi famously spiked its sales by loaning massively to poor credit risks about 2002.

          Bigtime defaults and crash in sales ensued. They never recovered.

        • 0 avatar
          SoCalMikester

          google “mitsubishi 0-0-0″ and youll learn what happens when a company literally gives cars away – no down, no interest, and deferred payments

  • avatar
    bunkie

    That ’56 Ford was well on its way to being worn out by the end of the loan. When you adjust for the longevity of modern cars, what has changed? The interest rate which, in most cases, actually makes this a better deal than Lee’s ’56. Especially when you consider current used car pricing.

    • 0 avatar
      danio3834

      5-8 year old cars tend to hold up pretty well these days. It’s more likely that the owner gets bored with it within that time period then rolls the loan balance onto another new vehicle before the first vehicle is actually worn out.

      Nothing will eat a person alive faster than paying down the balance of 2 auto loans on 1 car. Maybe multiple mortgages, and we know how that works out.

      • 0 avatar
        chrishs2000

        +1

        Continually buying brand new cars is the fastest way to stay poor.

        • 0 avatar
          Reino

          Continually TRADING IN your used car to buy a new car is the fastest way to stay poor. Let’s face it, the logistics needed to first sell a car privately, then go a few days or weeks without a car, before buying the next car, just don’t work for most people. This is why most people trade in their car for thousands of dollars less than it is worth.

          By efficiently selling a car privately, it IS possible to swap cars every 3-4 years without taking too much of a financial hit.

          • 0 avatar
            bodayguy

            In my state, there is a healthy sales tax advantage in trading a newish car in. Every time I look at the numbers, it pretty much covers the difference from a private sale.

          • 0 avatar
            SoCalMikester

            Hopefully youd already know what you want, exactly, before you sell you used car. The day after i sold my car, I was at the dealer picking up my new one. And yes, I even rode my bicycle there

      • 0 avatar
        IHateCars

        “Maybe multiple mortgages, and we know how that works out.”

        As long as rental income is paying down those multiple mortgages, I have no issue with having them. We used the equity in our primary residence as down payments on investment/rental properties and it’s working out quite well. Leveraging can be a great tool as long as you don’t over extend yourself.

  • avatar
    Zackman

    We bought my 2012 Impala on a 48 month note. Selling two cars to buy one sure helped by putting a HUGE chunk down and having pretty small payments for four years, but that’ll be paid off in a year or two, as our house will be paid-in-full this summer.

    I hate loans for anything, but keeping one manageable sure eases the pain…

    Bertel, I heard several years ago that people in Europe had TEN YEAR notes Mercedes and BMWs. Was/is that true? I guess that would make sense if you kept the car for at least that long.

    • 0 avatar
      MeaCulpa

      For mercedes cars (commercial vans/trucks/lorries/busses might have a different finance system) they offer loans of up to 84 months in germany, in Sweden the interest calculator on mercede site implies that 144 month loans are available (still 20% down payment by law thou) but I’m somewhat sceptical about those 12 year loans actually existing in reality.

  • avatar
    Sky_Render

    Why would anyone want to still be paying on a new car after it’s out of warranty? That just has “bad idea” written all over it. Most new cars come with a 5-year/60,000-mile warranty, in my mind, means any loan longer than 60 months is a pretty stupid idea.

    • 0 avatar
      chrishs2000

      They key is to purchase reliable cars, know how to take care of them, and obtain financing terms that are so insanely low that it’s basically free money. And not beat the hell out of your vehicles. If you’re not capable of doing those, you’re right, it’s probably smarter to buy an Elantra or whatever with a 100k mile warranty. That’s what I typically recommend to friend/family who just want “a car” at “a monthly payment”.

      As far as financing used vehicles: assume that I am guaranteed at least a 3% COL raise every year and do not save any money; any loan term below 3% is essentially free money after the first year. We currently have an ’03 Accord which was financed at 1.49% until it had 180k miles (now at 230k), an ’08 TSX which will be financed at 0.9% until approximately 160k miles, and an ’03 S2000 which will be financed until approx. 120k miles. This is not my first set of financed used cars and certainly won’t be the last. I’ve never had an issue and they only see the dealership for alignment or recalls.

      My question to you is: why would anyone want to buy a brand new car and eat all of the depreciation? You’re upside down from day one! If you lose your job and can’t afford your $500 payment, you are screwed. If I lose my job, I can sell 1 or 2 cars and wind up with money in my bank account. I have literally never been upside down for one day on a car loan, even though I drive my DD 30k miles a year. Putting a little money down, getting a good deal and having decent insurance guarantees this for the life of the loan.

      • 0 avatar
        bikegoesbaa

        “My question to you is: why would anyone want to buy a brand new car and eat all of the depreciation? You’re upside down from day one! ”

        Isn’t that a function of the size of your down payment and length of your loan term? It’s entirely possible to not be upside-down on a new car purchase ever.

      • 0 avatar
        jmo

        “My question to you is: why would anyone want to buy a brand new car and eat all of the depreciation? ”

        Because something like a 3 year old Accord is hardly discounted from new – it doesn’t make any sense to buy used.

        • 0 avatar
          chrishs2000

          $6-8,000 is hardly discounted, including a 100k mile warranty if CPO? You must be a lot better off than I am!!

          I did a cursory search of 2013 Accord the other day and found a few selling for $2-3000 off MSRP already with less than 10k miles.

      • 0 avatar
        bryanska

        Even if you lose your job, you still need the car. Getting rid of the car is not an option. Since you’ll have the new car for 8 years, you might as well have a 0.9% loan for eight years. Who cares if you’re under water? Get loan payoff coverage for your insurance, because you need a car to survive. (Unless you have good public transport)

        • 0 avatar
          chrishs2000

          “Even if you lose your job, you still need the car.”

          You need ‘a’ car, not ‘the’ car. I don’t think anyone actually ‘needs’ the car that they end up buying, otherwise we’d all have Cavaliers.

    • 0 avatar
      corntrollio

      “Most new cars come with a 5-year/60,000-mile warranty”

      Not true, that’s only Mitsubishi and Hyundai:

      www dot cars dot com/go/advice/Story.jsp?section=buy&subject=warranty&story=manWarranty

  • avatar
    ant

    4 years ago I bought a used car that didn’t require much of a loan. It was a 2004 tsx manual trans.

    Turns out the previous owner beat on it pretty hard. At 80k clutch went out. $1800. At 96k trans blew up. $4000 for a used trans that had more miles on it than the blown up one. At the same time, I put factory cat and headers back on (idiot before had some after market crap on that didn’t seal right), another $2000. Oh, and it needed power lock replacement, stereo circuit board, and wheel bearing. That was another grand.

    I got rid of it after that, and bought a new one. The new one costs less.

    My 2012 tsx financed for 29300, 72 month loan at a $442 payment.

    It has been a year, and according to kelly blue book, I’m just about even on value verses what I owe.

    The car is pretty nice, but the steering is sloppy, brakes are grabby, and premium fuel sucks to buy.

    The salesman thought I was crazy to turn down the $600 insurance for if it got totaled and I was upside down on the loan.

    I hate all the crap they try to sell you when you buy a new car.

    • 0 avatar
      danio3834

      The new car fallacy debunked in the very next sentence:

      “The new one costs less.

      My 2012 tsx financed for 29300, 72 month loan at a $442 payment.”

    • 0 avatar
      Stumpaster

      4 years ago you bought a used stick shift TSX that had after market crap on it. Please look in the mirror and say “I’ve learned my lesson” and make no further conclusions.

      You’re welcome.

      • 0 avatar
        chrishs2000

        Seriously. Pay for a PPI and don’t buy a car with “headers”. You had a really bad experience with one of the most reliable cars on the road. Methinks you bought a thoroughly and terribly abused example.

        Regarding the transmission, my guess is either you or the prior owner constantly skip shifted, which quickly wears out the synchros and leads to premature gear failure.

      • 0 avatar
        Russycle

        True, but a lack of mods is no guaranty that the vehicle has been maintained properly, or not been abused. Buying used is always at least a little riskier than buying new. If used car prices are high, why take the risk?

        I agree flipping a new car every few years is crazy unless you have money to burn. But if you keep your car 10 or 15 years, that depreciation hit isn’t so bad in exchange for knowing the car’s been well cared for from day one. The bonus is you can get exactly the car you want, right down to the color, which makes living with it long-term much more pleasant.

        • 0 avatar
          chrishs2000

          @Russycle: Risk can be properly mitigated in a number of ways, the least of which is a good PPI. IMO, color and package preference is the only good reason to buy new. My wife and I searched for 3 months for an 07-08 TSX in Arctic Blue Pearl, black interior and navi. Apparently they made about 7 of these. In three months only 2 of them popped up in my searches, one in CA and one in TX (I am in MI). We had to settle for an ’08 black/black with navi.

    • 0 avatar
      bryanska

      “The salesman thought I was crazy to turn down the $600 insurance for if it got totaled and I was upside down on the loan.”

      You should have purchased it through your insurer, and you definitely should have purchased it. I pay about $30 every 6 months. Even if you wrecked the car at 11 months, you’d still owe $442, so it’s always worthwhile to buy lease/loan gap coverage through the insurer.

    • 0 avatar
      28-Cars-Later

      I say if you’re happy its worth it, but in my neck of the woods just trying to imagine $442 for 72 months gives me the chills. Maybe this is more manageable/common in higher cost areas of the nation.

      • 0 avatar
        chrishs2000

        And the funny thing is that even after replacing the clutch (which he got screwed on) and the transmission (which he got completely screwed on, you can buy a brand new OEM one for that price) and the header/exhaust (which should have been obvious when he bought the car), it’s STILL cheaper than $442/mo for a brand new TSX. And IMO, it’s a much better vehicle than the brand new TSX.

        • 0 avatar
          krhodes1

          This is a point I make CONSTANTLY on the BMW boards when the idiots whine that nobody can afford these cars out of warranty. With a down payment big enough to ensure that my car will NEVER be upside down, Euro-delivery discount AND a healthy negotiated discount off that price, my LIGHTLY optioned ’11 BMW wagon is still $630/mo for 5 years at .9%. No way on God’s Green Earth will that car ever consistently cost $650/mo to maintain after the warranty is up. Even in the midst of the typical “midlife crisis” that all cars go through. That is a new transmission every 3-4 months, a new ENGINE a year.

          To me this sort of thinking is simply irrational. “I’ll spend a HUGE amount of money to avoid spending small amounts of money”. It is the same rationale that leads to buying extended warranties, which in reality are rarely more than pre-paying repairs at a very steep interest rate.

          • 0 avatar
            corntrollio

            Shhhh, krhodes1, you’re letting out my secret to getting late model luxury cars on the cheap.

            However, you should consider the residual value of the car after 5 years too. Let’s assume it’s 15K, so you’d get about $380/month instead. The economics still work.

            The problem is really that a lot of people are lazy about maintenance to begin with. They think short-term, not long-term, and instead of paying small money for small things, they end up with a bigger problem.

    • 0 avatar
      corntrollio

      So, you didn’t notice the aftermarket crap, didn’t notice that the guy was likely to abuse the car, and you didn’t get a pre-purchase inspection, but it’s really the used car’s fault, right?

      Most people would see that as a slightly different lesson…

      FWIW, 1800 + 4000 + 2000 is just under 18 months of car payments. I never understand why people dump a car after doing all that work — whoever buys it get a hell of a deal.

  • avatar
    geeber

    New-car loans had been around long before Lee Iacocca came on the scene. GM created GMAC in 1919 to provide financing to people who bought new cars. Iacocca creatively packaged and promoted loans that were for a longer term than the typical new-car loan at that time (which, if I recall correctly, was for two years).

  • avatar
    Conslaw

    I just entered into my first 5 year (60 month) car loan. Reason: less than 2% interest and $4,000 down, I should never be upside down on the car, and I can hopefully make more than 2% on my investments or by paying off higher interest debt. Thanks to improvements in cars and resale values, a 60 month loan is no worse than a 48 month loan was 20 years ago. Thanks to low interest rates, the amortization is relatively linear, so if your car is worth only 35% of what you paid for it 5 years after purchase, you shouldn’t be upside down on even a 6 year loan. Of course, all of this assumes you are a prime borrower. If you are subprime, the calculus is different, but then again, your options would be more limited as well.

  • avatar
    dwford

    People forget the option to lease. Typically you do a 24-36 month lease and end up with a lower payment than a 72 month loan. Solves the problems of boredom and life changes too. Some leases can be expensive, depending on the residual or money factor, but some are dirt cheap when the manufacturer wants to move the car.

    • 0 avatar
      KixStart

      Even if you lease, you’re taking a nasty hit on depreciation every time you swap cars.

      If you’re not wealthy, boredom is a problem to be resolved by self-discipline or, maybe, creativity. If your vehicle bores you, try adding fuzzy dice and a leopard-print steering wheel cover. Or switch radio stations.

      • 0 avatar

        You have a point about boredom, but what about life changes? Yesterday I didn’t need to tow the tool trailer, today I do, now what? I understand that I can get a used Liberty with 5000 lbs tow rating, but reliability is a question and my livelehood depends on it. Might as well get a new Frontier and write it off.

        • 0 avatar
          KixStart

          You’re making a business decision, too, and the “write if off” aspect impacts that in a way that does not apply to personal decisions.

          Earlier, I did mention one’s “needs” changing. They can and do. It’s best to be prepared for it. Swapping cars every couple-three years on account of “boredom,” whether you lease or buy, isn’t the kind of behavior that prepares you for changes in “needs.”

    • 0 avatar
      Reino

      New cars don’t cure boredom. I think I’d be a lot less bored in a $20,000 used Porsche 996 than in a $20,000 brand new Civic.

    • 0 avatar
      chrishs2000

      They can be good deals on undesirable cars, but those undesirable cars should be able to be bought used for far cheaper due to their terrible residuals.

  • avatar
    PrincipalDan

    Long loan terms are OK if you do actually keep the vehicle long term. My wife bought a 2005 Vibe brand new and still has it, it has been paid off for years. I bought a 2004 F150 in 2006 on a 5 year loan, it is paid off, I still have and have 0 plans to get rid of it.

    My father is a hard core used car buyer and always paid cash until he purchased a car using some home equity credit in 1996. He has done things that way since and always has his vehicles paid off long before he is ready for a new one.

    Debt in and of itself is not evil, it comes down to how you utilize credit and debt.

    • 0 avatar
      Power6

      Longer terms means more interest for the same vehicle though. My personal rule has always never longer than 3 years. I am thinking the issue with long terms is it brings the payment down and drives up what you are willing to pay, so you might buy that $40k car instead of a $30k if you can finance it over a longer term.

      Back when 5 year terms were the longest, the argument was that cars are lasting longer and worth a bit more money, but is that really the case? Seems like not so anymore.

    • 0 avatar

      But Dan, you and your wife got the shorter loan than the numbers being thrown about in the article. Congratulate yourselves on being a responsible borrowers, but this is not the point.

      • 0 avatar
        PrincipalDan

        I guess Pete my point is to those people who think that debt is inherently evil and will lecture you about the fact that you have any debt at all. Debt is a tool and like any tool it can be misused.

        My first wife was a misuser of debt and I am still paying for it (although that debt repayment plan will be completed in 2014, 5 years after it began.) There is a big difference between using a hammer to drive home a nail and using it to bludgeon someone to death. Some of the holier than thou TTAC readers don’t seem to know the difference.

      • 0 avatar
        KixStart

        Interest on the home loan is deductible, too. That can have a significant impact.

  • avatar
    Volt 230

    No wonder Camry continues to be # 1 in sales, buyers need to know that the car will still run after 7 years of monthly payments and then what? start all over again, never, ever finish making car payments? ridiculous!I finished making payments 10 yrs ago and plan to go on as long as possible.

  • avatar
    Power6

    Don’t know why I hadn’t thought of it this way, it seems longer loans and cheap financing may be driving up the prices of cars, i.e. what people are willing to pay, similar to education financing and tuition.

    Too bad, makes me feel like I can’t afford any of these new cars, and I do pretty well ha. I’ll keep driving my 12 yo Lex-Camry.

    • 0 avatar
      highdesertcat

      But these loans are very selectively let, mostly to young people, even those with a bleak, insecure future. People over 60 years of age have an increasingly difficult time to get new-car loans at favorable rates, as they age.

      Many people over age 60 would like to finance so as to conserve what financial assets they have sheltered for distribution to their heirs, should they die before the loan is paid off.

      Loans are available to old people, albeit with all sorts of padding built in for term-life insurance, credit-life insurance, disability insurance, or whatnot. For old people, using only the vehicle purchased as security for the loan, doesn’t work for most lenders.

      I will say that USAA is an equal opportunity lender, but not everyone can qualify to be a USAA member.

      • 0 avatar
        thomm

        This claim about the padding shows that you know how to make assumptions, but not much about financing cars. Credit life and disability insurers have age cut offs for coverage in many states and it is illegal for lenders to adjust interest rates due to age. Many of these older buyers show up with surprisingly lower credit scores than you would imagine due to the algorithms that the credit bureaus use to come up with the scores since they tend not to use much credit and pay it off too fast to make the equations happy. Somehow I was able to get a 96 year old buyer a 4% rate on a 5 year loan in 2010 and could not offer life or disability coverage due to her age…according to your statenents, it should have been 15% with all of the coverages added automatically (something else illegal in many jurisdictions by the way).

        • 0 avatar
          highdesertcat

          thomm, no assumptions on my part.

          Happened to my wife’s dad, age 86, in the Land of Enchantment, The Great State of New Mexico.

          Couldn’t find a lender that would treat him the same as a young person with great credit and a stable income, even though he’s made of money. He just wants to pass the money on to his daughters.

          Happened to my daughter-in-law’s dad, age 67, in the Republic of Texas, Dallas, to be exact. He could not qualify for USAA since he never served so he was at the mercy of bank and credit union lenders.

          These two people ended up buying anyway by writing out a personal check for the whole amount. That’s not the issue.

          As far as their low credit scores? That may be true for SOME people, agreed. But not for these two. They are still working in and for their own businesses.

          Just because YOUR jurisdiction may protect the elderly, don’t assume that it is the same everywhere.

          Discrimination against the elderly is much more common than you appear to know.

          • 0 avatar
            thomm

            Well, sounds like a regulation problem. Of course businesses will milk any last penny they can to chase profits. Sorry to hear about what happened to your family member, but without regulation, these are the types of practices that come about. People would complain about the amount of docs they had to sign to buy a car in my state (PA), but after previously living in VA, I would point out how each seperate disclosure was to protect them and that the video tape in my office was to do the same. I am a fan of regulation for this reason. The average customer is not equipped to ask the right questions or to know what they can refuse. Keeps the ones with the power honest in the deals.

          • 0 avatar
            highdesertcat

            thomm, the laws change from state to state and it is unlikely that we will ever have a regulation that will fit all states and territories of the US. We can’t agree on critical things so mundane matters like loan-equality don’t even come up for discussion.

            So through it all there remains one slogan that all potential buyers should adhere to, Caveat Emptor.

            Let the buyer beware.

            It’s better to walk away and fight another day. A little due diligence can often see a prudent shopper get pre-qualified for a loan at competitive rates that apply equally to young and old. It may take a little doing to find such a lender.

            But when that happens it is a win-win situation where both the borrower and the lender come out ahead, even on a 97-month loan.

      • 0 avatar
        vaujot

        “Many people over age 60 would like to finance so as to conserve what financial assets they have sheltered for distribution to their heirs, should they die before the loan is paid off.”

        If I am not mistaken, if they die before the loan is paid off, the loan becomes a liablitiy of the estate that the heirs have to pay off.

        • 0 avatar
          highdesertcat

          vaujot, you are exactly right.

          It becomes a liability of the borrower’s estate and the heirs will have to pay off or it goes through probate court if the borrower dies intestate.

          However, many lenders do not want to wait for a payoff since heirs often default and so lenders require old people to come up with a stiff downpayment PLUS the additional costs for credit life and/or term life and/or disability insurance.

          The exception is USAA, an equal opportunity lender, whose membership is limited to vets who served honorably, and their immediate family members. Those who qualify for membership in USAA are but a very small percentage of the 330 million people residing LEGALLY in America.

      • 0 avatar
        corntrollio

        “Many people over age 60 would like to finance so as to conserve what financial assets they have sheltered for distribution to their heirs, should they die before the loan is paid off.”

        So even if what you’re saying is the case (and it’s not clear that it is in all cases), how do you propose that we compensate the lender for the risk of a non-performing loan? Higher interest rates?

        • 0 avatar
          highdesertcat

          I propose that we adhere to estate/probate-law already in existence.

          But probate takes a long time to settle out, and heirs often default on settling liabilities against an estate.

          The question is one of parity. What happens to a non-performing loan let to a young person who loses their job and defaults? It has to be settled the same way as for anyone who dies.

          IMO, it should also apply to an old person who qualifies for the same loan on all criteria except advanced age.

          This problem is worse in some states than it is in others, but it does exist.

          And as I grow older and my financial priorities change in favor of my children and grand children, I would prefer to use my liquid assets to help finance my family members to ease their transition into this highly competitive world to give them an edge.

          So I can relate why my wife’s dad, and my daughter-in-law’s father would have preferred to take out a loan for their new vehicles, rather than pay cash for them and see their checking account reduced by such a big chunk. They’re no different than most people over age 60 — they’re very predictable. More so than young people.

          If they die before the loan is paid, let the life insurance and the estate pay it all off. That’s what happens when young people die unexpectedly.

          Besides, it’s always better to gamble with other people’s money.

          I don’t anticipate ever needing a loan of any kind but others of my vintage and older have been disappointed to find the deck stacked against them when they wanted to buy a new car.

          They either went ahead and paid cash for it or they had to suck it up and make those punitive higher loan payments.

          • 0 avatar
            corntrollio

            If you want to gamble with other people’s money, pay up. No sympathy on that from me.

            The real answer is higher risk = higher rate, end of story. The bank doesn’t want to take the risk that you’ll cash out your life insurance or piss away your whole estate (which is what you’re suggesting would encourage).

            Still, I’ve never heard of this being as big a problem as you suggest it is, as you have repeatedly.

          • 0 avatar
            highdesertcat

            “The real answer is higher risk = higher rate, end of story. ”

            That’s not true. Young people die too.

            USAA is an equal opportunity lender that charges the same rates for everyone, regardless of age.

            Not everyone can qualify for membership in USAA because membership hinges on honorable military service.

            So it can be done.

            It isn’t a problem for me since I haven’t had to borrow money since 1988 when I bought my first new Silverado pickup truck. And I don’t have accumulated wealth to worry about since I spend all of mine on my kids and grandkids as soon as I get it, to give them an edge in the real world.

            But it is a problem for old people with lots of money in the bank who want to take steps to make sure that their money and assets go to their heirs but who do not want to take their accumulated money out of their savings accounts. Now they are forced to do so and many choose to buy that second, third or fourth home for cash while the housing market is still great, and fore go buying a new car. Young people can do both and stick themselves in debt for both. Old people cannot.

            The reason you don’t think it is a problem and have never heard it to be a problem is because you’re not 60 or older and you don’t mingle in social circles that see most lenders as increasingly biased against old people.

            It is always interesting to learn how others view a given subject and these extended car loans for young people is no different.

  • avatar
    Lichtronamo

    Part of the issue is the insanity of new car prices. The average car sells for $31K but is that the mean or the median? Price an F-150 and see how fast the sticker cruises and then check the sales charts. Ford sells more F-150s than some companies sell entire lineups. Either you’ve got the money to afford the F-150 (or an A4/3-Series instead of an Accord) or you don’t but still want the image/lifestyle. Solution?

    • 0 avatar
      mike978

      The average person spends well less than $31K, we know the majority of Camry’s, Altima,s and Accords that people choose have MSRP’s in the mid $20K’s and then you get 10% off – example is Camry SE (40% take rate) which has MSRP of $25K but through AAA can be had for $4K off. Accord Sport has similar MSRP and $2.5K off. Mid-size sedans is the largest segment. Compacts are cheaper and are a big segment so I am assuming the $31K figure banded about is driven up by Porsche, RR etc and is the average. If it is the median then there really are issues.

      • 0 avatar
        highdesertcat

        Yeah, it is difficult to determine what the median is and for what type(s) of vehicles.

        By class or segment, i.e. the midsizers, if you count up ALL the ones sold and divide that number into all the money paid for them, conceivably one could come up with a ‘median’ price.

        But that does not compensate for region, district, country of origin, trim-level, or what the value of the trade-in was, if any.

        For instance, in California, a Japan-built Camry is valued much higher than a Kentucky-built one, and could very easily command as much as $3K-$4K over sticker, depending on trim and dealer-installed crap padding the MSRP. They always have loss-leaders but by and large they sell most well over sticker.

        Something like that would skew ‘median’ all to hell. Complicating that factor, lenders like a credit union will now allow a young borrower to finance 120% of the purchase price of the car to include insurance and the like.

        So I formulated that whatever price a buyer pays is what is considered the best price and may establish the median for that buyer or that region. Once that is accepted, then the lenders will conform to finance at those levels for that region, even if it stretches to 97 months.

        • 0 avatar
          WRohrl

          Yeah, right, show me some data to verify those claims. Having lived in CA with friends and aquaintances that bought Camry’s, they A) did not care where the car was built, and B) did not pay a dime over sticker. They wanted to buy a reliable appliance and did so. Sure it is is easy to find some on the lot with added crap, but at the end of the day, a Toyota dealer is not selling a Camry over sticker to anyone with an ounce of common sense. It is remarkable the US-built Toyota hate you try to spread here, even after buying a US-made Toyota Tundra yourself that you can’t stop praising. Very strange. And no, I don’t want to hear any unsubstantiated anecdotes about your dealer brothers who appear to have sold at about the worst time to get out of the car business. Most surviving dealers at most brands at this point are doing well and I’d guess their dealerships are worth more now than at any time in the last 5 years.

          • 0 avatar
            highdesertcat

            WRohrl, maybe you should try shopping for a Camry yourself in Oceanside/Carlsbad, Riverside/Temecula/Escondido, and Mission Valley, San Diego, CA.

            Just because YOUR friends and acquaintances A) did not care where the car was built, and B) did not pay a dime over sticker, doesn’t mean that many others don’t. The reason Toyota still imports stuff that’s built in Japan is because there is a market for it and informed people actively seek out the “JT….” VIN.

            I don’t spread US-built Toyota-hate! I own two Toyota products and am a self-admitted convert to Toyota since 2008.

            You seem to disregard the nose-dive Toyota quality took and Ray LaHood’s crusade against US-built Toyota products.

            Hey, even Mr Toyoda himself, before Congress, admitted publicly that Toyota products in the US had suffered from degraded quality, poor workmanship and cheap materials and apologized to the world.

            ALL dealerships, regardless of brand, are doing much, much better now. Not just Toyota, and that’s why borrow time is getting longer, because more people are buying.

            And most of them don’t mind or don’t know they are paying more than MSRP, as long as they can get the financing. Ditto with the UAW-built Jeep Grand Cherokee — they’re selling for over MSRP these days if you can latch on to one long enough to close the deal.

          • 0 avatar
            onyxtape

            I didn’t know that they still imported Camrys. I had an imported 99 Camry, and a coworker had a Kentucky-sourced one. There were notable differences in materials and feel – and my coworker agreed too. I’m guessing the gap is probably a bit closer nowadays.

        • 0 avatar
          corntrollio

          Toyota isn’t importing Japan-built Camrys to the US any more, so your belief is out of date:

          editorial dot autos dot msn dot com/blogs/autosblogpost.aspx?post=1825b20f-44ba-4c98-93bb-094520ed7ccb

          They were rare to begin with. According to the article, Japan-built was 0.5% of the annual Camry sales from January 2011 to August 2011, under 1000.

  • avatar
    Reino

    I only took a loan for my car (2004 Accord for $10k) because I had the cash on hand to cover it.

    When I sat down with the dealer, he started out at 7%.
    I said “No thanks, I’ll just pay cash.”
    Then he went to 5%.
    I said “No thanks, I’ll just pay cash.”
    Then he went to 4%.
    I said “No thanks, I’ll just pay cash.”
    When he went down to 3%, I took it.

    Dealers WANT you to finance. If you have the cash to leverage the negotiation, you can end up with the rate you want and then deploy the cash elsewhere.

    • 0 avatar
      chrishs2000

      This. Financing is an EXCELLENT leverage in negotiation. I always walk into the dealership with an outside loan already secured at a good rate. If the dealer wants my finance business too, they have to earn it on the price of the vehicle.

      • 0 avatar
        28-Cars-Later

        I concur, had a friend recently pay cash for a car at a price I recommended… they would only meet the price if she agreed to finance 50% though them for at least three payments. Evidently new car dealers get a bonus on a successful finance agreement. I was a bit taken aback by the rejection of a cash offer, its always been welcomed at your typical small lot.

        • 0 avatar
          krhodes1

          Cash being somehow an advantage has been a myth for quite some time. No matter what, the dealer is going to get “cash” for the vehicle, whether directly from you or from a finance company. What possible difference does it make to them, other than they certainly get a kick-back if they arrange the financing!

          In the case of my recent purchase of a FIAT Abarth, I went in with financing pre-arranged with my Credit Union. The dealership beat it by 1.5%, and beat FIAT’s own advertised rate on the Abarth by over 2%. I was pleasantly surprised.

    • 0 avatar
      corntrollio

      What a jackass. You obviously qualified for a low finance rate, but the guy was trying to get you into a higher payment. This is why you always show up with your own financing.

      By the way, when I’ve financed in the past, the dealer has generally not been able to beat my credit union’s rate (currently 1.74%, it was 1.49% not that long ago). Their rate if you use their auto-buying service is 0.74%, but that’s because they get a kickback through their Truecar system.

  • avatar
    Kyree S. Williams

    That can happen when you negotiate the monthly-payment terms and not the actual price of the car….something that I have warned numerous people not to do, and often after it was too late. I have also seen people not put anything down on a new car, and then end up in a position where they can’t make the payments and can’t sell it because it’s worth less than they owe. And would you believe that a good number of the people I’ve talked to don’t actually know their interest rates? It really is sad to me that we aren’t by default taught how to purchase big-ticket items like automobiles…

  • avatar
    nickoo

    This article is posted in full at yahoo finance. It ties my stomach in a knot to see people taking loans as long as 97 months. Here’s a cringe worthy excerpt from the article:

    “Last month Nakisha Bishop took out a loan to buy a $23,000 Toyota Camry and pay off several thousand dollars still owed on her old car. The key to making it work: she got more than six years—75 months in all—to pay it off.
    “I had a new baby on the way, and I was trying to keep my monthly payment a little bit lower to help afford child care,” Ms. Bishop, a 34-year-old sheriff’s deputy in Palm Beach County, Fla., said recently. She pays $480 a month for the 2013 Camry, just $5 a month more than the note on her old car. The car won’t be paid off until her 1-month-old daughter is heading to first grade.
    Ms. Bishop’s 75-month loan illustrates two important trends rippling through the U.S. auto industry. Rising new-car prices and competition among lenders to attract borrowers is pushing loans to lengthier terms. In part, banks see the longer terms as a way to attract buyers, by keeping monthly payments under $500 a month.”

    That’s insanity, she’ll end up paying $480 a month on her car for 75 months for a total of $36,000 in payments on a $23,000 loan!!!

    Why? Oh Why?!? did she not buy used? I recently bought a 1997 thunderbird v8 with 44k on it. I paid $3400, cash, and pay just at $500 for annual insurance premiums, and that is going with 100k/300k limits, well above the state minimums. My car will do everything her car will do except have 4 doors (which admittedly, would be nice to have as 4 doors are conveniant as heck, but I think I made my point).

  • avatar
    ranwhenparked

    I don’t know if that was that great of a deal in 1956, either. $56 was a pretty decent chunk of money back then, inflation adjusted to over $466 today. Still, at least you were out of it after 36 months – but, of course, the way cars wore out back then, after 36 months it was probably about time to start over again with a new loan on a new car. At least today your car stands a chance of having many years of reliable service left after the finance period ends.

  • avatar
    AJ

    The problem I’d see with a long term loan is one would be underwater for longer, which would be a problem if the car was totaled, or if you want to get rid of it. The five new cars I’ve bought, I paid them all off in four years or less. It’s nice not having a payment go on and on, is my goal. Currently I have three nice cars and no payments. Nice!


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