By on August 26, 2013

car-loan-for-bad-credit

According to a report issued last week by the U.S. Federal Reserve Bank of New York, car and light truck loan originations have reached a six-year high. Automotive News reports that for the second quarter of 2013, new loans went up 11% to $91.8 billion, including consumers with all credit ratings. U.S. light vehicle sales were up 9% for the quarter from last year.

The Fed said that the biggest year to year change was in the 621-660 credit score range, just below “prime” rankings. That tranche rose 16% to $12.1 billion. Loans to those with worse credit, a score below 620, were up ~11% from 2012 to $21.2 billion.

Among all loan originations, according to the Fed report, the biggest year-over-year percentage increase was in the 621 to 660 credit score range, just below prime risk, which rose 16 percent in the second quarter to $12.1 billion. Loans to borrowers with credit scores of 620 or below increased about 11 percent from a year ago to $21.2 billion.

Loans are only now reaching what the Fed describes as normal levels following the financial crisis of 2008. “While originations to borrowers with the lowest credit scores have increased, they are just recently approaching historically normal levels and are below those that we saw during the boom years leading up to the crisis,” the report said.

Total auto loans exceeded the previous quarter for the ninth successive financial quarter since Q3 of 2008, with more than $800 billion borrowed.

Average loan balances have risen to $13,435, up 4.5% from 2012 and up 1.3% from the previous quarter. As those with less than prime credit ratings return to the market, their loans, which tend to have higher initial balances, are putting upward pressure on the average balance.

Though less creditworthy customers are borrowing more money, they appear to be making their payments. Payments that were at least two months in arrears were flat from last quarter, going from 0.79% to 0.80% of car loans, according to the TransUnion credit agency. Both of those figures were down from 0.88% in the first quarter.

Peter Turek, TransUnion’s VP, said the data was good news. “It’s encouraging to see consumers take on more auto debt while delinquencies remain low.”

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62 Comments on “Fed Reports Auto Loans at Six-Year High, Average Balance Up, Delinquencies Down...”


  • avatar
    Speed3

    Waiting for a snarky Chrysler/sub-prime loan comment in 3…2…

  • avatar
    tuffjuff

    I wonder how long it will take having the majority of our nation being in the low to mid 600′s for it to become not “sub prime.”

    • 0 avatar
      aristurtle

      What, are we grading on a curve now?

      If your profile indicates x% chance of default, that’s the percent chance that it indicates, regardless of where everyone else is. It doesn’t magically indicate that x is a lower number just because more people have the same credit score.

      • 0 avatar
        tuffjuff

        I pay my bills on time, as do many folks, and I’m in the low 600′s. That said, I picked up a new vehicle on a loan in the high 20′s earlier this year, with a mediocre APR. How people who pay their bills on time not having a 750 credit score means I’m somehow less of a person is beyond me. The credit system is beyond messed up in the United States, and has been for years.

        • 0 avatar
          darkwing

          Well, for starters, you should be basing your self-worth on something more concrete and beneficial than your credit score.

          Remember that lenders are primarily concerned about your probability of default, not how likely you are to make payments on time. (Which is why payment history is only about 35% of a FICO score.)

          Stellar credit history or no, I’m not loaning you, say, $40K to buy a new BMW if your household income is only $60K, or if you’re living paycheck to paycheck, or anything like that.

          • 0 avatar
            highdesertcat

            darkwing, “I’m not loaning you, say, $40K to buy a new BMW if your household income is only $60K”, that’s the fallacy in the system.

            Many old people may only have an annual gross of <$36K, but they often have tons of money in the bank that they want to conserve for as long as they can while they're still alive.

          • 0 avatar
            darkwing

            So, in that case, they provide asset documentation to the lender, push it back to underwriting, maybe put down a larger down payment, and they can still get a loan. (Like when you get a mortgage. It’s much less common in car loans because the loan-to-income ratio is usually so drastically different.)

            But I fail to see how an obscure corner case becomes a “fallacy in the system”.

          • 0 avatar
            highdesertcat

            I don’t think it is far fetched. Maybe it is more common than you think for people in MY age and income bracket.

            The Boomers are a sizable percentage of the US population and exist on a plane different from the people still working to make ends meet. Regardless, Boomers are an important DINK group of new car buyers.

            Maybe that’s why for those who qualify, USAA and the Pentagon Federal Credit Union are an answer to all their individual financial needs.

          • 0 avatar
            darkwing

            I said “obscure”, not “far fetched” — the difference is important.

            Oh, please. Before you get the vapors from the rarefied air you and your fellow boomers are supposedly taking in, let’s check the facts — your average boomer is pulling down $75K a year and has less than $100K saved for retirement. If your average boomers are that far behind the curve, and even thinking about buying a new car, they’re idiots.

            I guess that’s why you guys are busy trying to pull the ladder up behind you, and make me pay for your retirement and your health care…

          • 0 avatar
            highdesertcat

            Ahhh, yes! The Blessings of the Affordable Healthcare Act.

            Young people of America! Prepare yourself to enroll in Obamacare and pay more for your own coverage to help pay for the indigent and older folks because the $116 per month we Medicare-recipients pay isn’t enough to cover all the freeloaders that will be jumping on board of Obamacare next year.

            As far as pulling up the ladder behind us, hey, we had to make it on our own.

            Now it’s your turn to find your own way. Many of you young people voted for this when you voted for Obama, now get to work and enjoy what your vote has bought for you.

            And I agree with you, actually! People in MY age group are indeed puling up the ladder behind us, and that’s why so many old codgers like myself have this philosophy of looking after our kids and grand kids. Anything to give them a leg up on the competition.

          • 0 avatar
            highdesertcat

            Ahhh, yes! The Blessings of the un-Affordable Healthcare Act.

            Young people of America! Prepare yourself to enroll in O*care and pay more for your own coverage to help pay for the indigent and older folks because the $116 per month we Medicare-recipients pay isn’t enough to cover all the freeloaders that will be jumping on board of O*care next year.

            As far as pulling up the ladder behind us, hey, we had to make it on our own.

            Now it’s your turn to find your own way. Many of you young people voted for this when you voted for O***a, now get to work and enjoy what your vote has bought for you.

            And I agree with you, actually! People in MY age group are indeed pulling up the ladder behind us, and that’s why so many old codgers like myself have this philosophy of looking after our kids and grand kids. Anything to give them a leg up on the competition.

          • 0 avatar
            highdesertcat

            HA! It appears that O***a is a banned word on ttac.

            Never thought the Canadians would stoop that low.

            Maybe it has something to do with maintaining friendly relations in spite of the Keystone pipeline project.

          • 0 avatar
            darkwing

            Government pension, cash in the bank, but gloating about being entitled to an ever-growing share of my money. Typical.

            You could at least have the decency to thank me for those overly generous federal benefits you’re getting. For now, anyway.

          • 0 avatar
            Kenmore

            @darkwing

            Are your parents not boomers?

            Do you unload on them, too?

        • 0 avatar
          highdesertcat

          tuffjuff, that’s the same conundrum that old folks face too!

          They work hard all their lives, paid their bills on time and yet they’re rated with the subprimes when they apply to buy a car, because 1) they haven’t had any credit lately, or 2) their credit data is so old it’s useless to the lenders, or 3) the actuaries believe the old folks won’t be around to make the last payment on the loan.

          “The credit system is beyond messed up in the United States, and has been for years.”

          Exactly!

          However, there is hope on the horizon for anyone and everyone who qualifies for membership in USAA and/or the Pentagon Federal Credit Union.

          These two lenders do not discriminate and never have. They extended credit to me when my military income was below the poverty line and I had but one or two stripes on my arm, with zero credit history.

          To show USAA my appreciation for what they did for me, I carry my Life, Home and Auto insurances with them, carry one of their Credit Cards and maintain both a Checking and Savings Account for my Direct Deposits.

          I absolutely love those people! They did me right! They’re the only ones who did.

          • 0 avatar
            el scotto

            Oh please. USAA used to be for officers only; no lowly enlisted scum need apply for their rarefied services. No, it’s not that hard for an E-3 to get a loan if they have an allotment set up. It’s a guaranteed payment. Credit unions by default are discriminatory; you have to work for, belong to something, live somewhere etc to qualify. They’re not like a bank where anyone can walk in off the street and do business.

          • 0 avatar
            highdesertcat

            el scotto, USAA for officers only? Must have been before my time (1965 – 1985) in the military.

            I was with USAA from 1968-1972 and then again from 1980 through today. Well, I was a Non-Commissioned Officer in 1968. Does that count?

            I had also heard that the original Government Employees Insurance COmpany (GEICO) was only for civil service people, but that was OK because my wife at that time was a GS-3 and she was covered by the Original GEICO, as was her dad. When she and I got married, she just included me on her policy.

            I don’t know about local credit unions but I know from personal experience that the Pentagon Federal Credit Union and the Navy Federal Credit Union will take military people and their dependents from any branch of the service, as well as DoD Civilian personnel, and that includes Retirees and Reservists.

            Regardless, I like doing business with them and their rates are great IMO.

    • 0 avatar
      darkwing

      Either when prime defaults increase, or subprime defaults drop. Risk doesn’t grade on the curve.

  • avatar
    darkwing

    These are loans for all vehicles, right? Not just new cars/trucks?

  • avatar
    ash78

    Subprime is just a commentary on the Probability of Default, using the credit score as a proxy for everything.

    My experience in the auto lending space is that the group of borrowers just below prime are the ones you make the most money on — their default rates are not so bad you lose you shirt, but they’re willing to accept very high loan rates that more than compensate the banks for the risk (most of the time). And cars are surprisingly good for banks in this score range, since many people are paycheck-to-paycheck and would rather pay their car loan than their mortgage, if push came to shove. Need to get to work, right?

    At the end of the day, it’s about whether you’re being compensated for risk. If all you do is lend to 700+ credit scores, you’ll never lose much money. And you’ll never make much money.

  • avatar
    Kyree S. Williams

    You mentioned the statistic about subprime borrowers twice in the article. What I’d like to know, rather than the number of loans, are the average terms of those loans. I personally wouldn’t do anything longer than 48 months, but are a significant number of people turning to 84 and 96-month loans?

    • 0 avatar
      jmo

      “I personally wouldn’t do anything longer than 48 months”

      Even at 0%?

      • 0 avatar
        highdesertcat

        0% financing just means you paid the finance charges up front as part of the retail sales price.

        If you dissect it, you’ll find you will pay more with 0% than if you take all discounts and finance it with a Credit Union, or pay cash for it.

        • 0 avatar
          jmo

          That entirely depends on your specific transaction. For what ever reason some offers are cash back or 0% some sre just 0% some are only cash back, etc. You can’t really make any global statments as the deal available each month can vary in their details by quite a bit.

          • 0 avatar
            krhodes1

            One more point, the advertised rate is not necessarily all a dealer can offer. On my BMW, the advertised rate was 2.99%, but BMW gave me .9% for 60 months. . On the Fiat, only Pops were supposed to be 1.9%, but they got me that rate for an Abarth. Beat my credit union substantially in both cases.

            I also got substantial discounts on both cars without trying too hard.

        • 0 avatar
          krhodes1

          Highly unlikely these days. Car dealers make money on the financing, why would they give you a bigger discount for paying cash? They are going to get “cash” regardless, whether from you or a bank. And they probably get paid faster from the bank, takes a while for a $30k check to clear. I always go to my credit union first, negotiate the price, then let the dealer try to beat them on the financing. So far they always have. I do have a credit score above 800 though.

          In these days of all but free money, it makes no sense to pay cash for a car.

          • 0 avatar
            highdesertcat

            During the recent “give-away” of 2013 Silverado trucks, a couple of my contractor friends found that it was more advantageous for them to take all the discounts and then pay for the whole enchilada with a check.

            Not everyone is enamored with taking out a loan and having that liability hanging over them.

            Old people on a fixed income would like to conserve the capital they have stashed away, if any, but often do not qualify for such “free money” loans.

            People do what works best for them. Do you really think that people who receive Wall Street bonuses, as an example, take out a loan to pay for their new car?

            I’ve got a son working for a Japanese bank in CA and he bought a 2012 Grand Cherokee SRT8 with his bonus. He is 45 and could have financed, but why would he?

          • 0 avatar
            jmo

            Do you really think that people who receive Wall Street bonuses, as an example, take out a loan to pay for their new car?

            I would assume many would lease as that’s usually the cheapest way to drive a new car ever 2 or 3 years.

            IIRC Steve Jobs leased a new Mercedes SL every 6 months.

          • 0 avatar
            Kyree S. Williams

            Not to mention the fact that car dealerships will often mark up your interest rate by one or two points and skim the profits from the difference. Before my mom got her Sonata Limited a couple of weeks ago, she had gotten pre-approved by her credit union (through which she had financed the previous car, and the one before it) for a certain interest rate, but the one the dealership quoted her was quite a bit higher. I can’t imagine the amount of money they make from people who don’t perform research on interest rates, or who don’t even know their credit scores…

          • 0 avatar
            krhodes1

            If the dealership wants your business, they will find a way to give you the price, AND the cheap financing.

            Ultimately, you have to find the best bottom line deal. I didn’t HAVE to finance either of my cars, but at these rates I would just as soon keep my money making money. In more normal times of 6-8-10% car loans, the calculus would be completely different. I say get while the getting is good.

            BTW, the expression “fixed income” amuses me greatly. Both Social Security and the majority of pensions have guaranteed cost of living adjustments of some kind – no job I have ever had has. You may be on a “smaller income” but it sure isn’t fixed.

            @Kyree S. Williams

            As mentioned, the dealers have beaten my credit unions best rate effortlessly. Failure to do your due diligence in any large financial transaction is abject stupidity.

          • 0 avatar
            highdesertcat

            Kyree S. Williams, I agree that people who want or need to finance should shop around before committing.

            OTOH, I don’t know what my credit score is and I haven’t financed anything since I bought a brand new 1980 Chevette Scooter for my wife that cost me $4K.

            jmo does have a point though. A lot of people choose to lease. But that was not the core of this topic, which dealt with

            “Fed Reports Auto Loans at Six-Year High, Average Balance Up, Delinquencies Down.”

    • 0 avatar
      28-Cars-Later

      I wouldn’t purchase a car I couldn’t realistically afford at 0% with any loan term (*with* depreciation factored in), and I think this is where people are getting trapped. I’d happily take the maximum loan period amount at 0% with a low min payment and pay it off at my leisure, starting with more than min and dropping it to min if I needed to for a time. Play with the bank’s money and not your own.

      • 0 avatar
        jmo

        Why would you pay off a 0% loan early?

        • 0 avatar
          28-Cars-Later

          I personally don’t like being in any sort of debt, but sometimes its necessary. I might take a 7 year loan but make the equivalent of a 5 year payment. If something comes up and I need to free some cash flow, I might drop it down to the cheaper payment for a time.

          • 0 avatar
            jmo

            I personally don’t like being in any sort of debt

            If you have the cash to pay it off, why does it matter?

          • 0 avatar
            28-Cars-Later

            Because at 0% I’d rather play with the banks money and free mine up for savings, investments, and fun.

          • 0 avatar
            jmo

            Because at 0% I’d rather play with the banks money and free mine up for savings, investments, and fun.

            But you do that by paying the 0% loan off as slow as possible. You’re much better off keeping that 10k balance at 0% and $10k in savings/investments and paying x/per month than paying off the entire amount with your $10k in cash and then saving your now non-existant payments.

          • 0 avatar
            highdesertcat

            28-Cars-Later, Thank you!

            That’s the exact sentiment that many old folks like me have too.

            We like to conserve what we have to make it last for as long as we’re alive, and then have some left over to give to our kids and grand kids.

            It’s like one old guy told me, years ago, “My income may be below the poverty line, but that doesn’t mean I don’t have money stashed away.”

            When he died, his kids became very well off indeed. Just his oldest son alone with his share was able to buy a new house, both a new Caddy and a new Lincoln, and start a land-title business.

            That was exactly the financial boost he needed to take his life to a new, higher level.

          • 0 avatar
            jmo

            “We like to conserve what we have to make it last for as long as we’re alive”

            The way you do that is by keeping your $10k in cash/investments and paying off your 10k 0% loan as slow as posssible.

          • 0 avatar
            28-Cars-Later

            @jmo

            I agree with you better to have the 0% note as long as possible and keep your own cash in reserve (and also because you’re going with inflation), but having too many loans dings your credit, zirp or otherwise. Zero percent is a financial drug that’s easy to get hooked on. For my budget, its better to get the 0% loan for 96 months and pretend its not 0% and pay more and know I have cash flow in reserve I can free up at any given time. Essentially for me its all about control of cash flow, if I must be in debt I’d like cash flow to be to my advantage.

          • 0 avatar
            highdesertcat

            Ultimately, each of us has to do what’s best for us.

            What works for some doesn’t work for others.

            Given a choice, I like to pay cash for all my purchases and rarely use a credit card, unless purchasing stuff online.

            I haven’t had to finance anything since 1980 but then I’m not constrained by lack for cash money.

            I have no idea what my credit score is. Never even check on it nor request a credit report.

            What I am saying is that for people in my age and income bracket, things are not as simple as for someone still working to make a living.

            However, I know a few independently wealthy individuals who gained their wealth either through hard work, inheritance, or both, and I know of no one of that group who finances anything, and least of all cars.

          • 0 avatar
            krhodes1

            @highdesertcat

            The definition of “independently wealthy” is having enough money to not give a damn about money. I’m not there (yet), so I have to take advantage of what advantages I can find in life financially. Car loans and mortgages under 3% are probably a once-in-my-lifetime thing. We live in interesting times indeed, and while I very much like having grabbed a couple of nice cars, I don’t plan to make it a habit, and I prefer to keep my money making money. And if you have to sell at a loss, the market is a LOT more liquid than a BMW.

            My own quirk as I have mentioned here previously, is I will make myself pay the loans off before the warranty runs out. On the one hand, it makes no sense because I can easily afford loan payments and repairs at the same time, and neither car is likely to need any in that one year gap (4yr warranty, 5yr loans). But it makes me feel better. :-)

            I must say, I find highdesertcat’s desire to leave a big chunk of money to his progeny extremely admirable. My Grandfather is much the same, he has helped me out many times over the years, as well as my cousins and his own children. Truly “The Greatest Generation”. Personally, I am a selfish git. I plan to take it all with me even if that means buying a solid gold casket with my dying breath! Of course, I have no intention of reproducing either. The genetic buck stops here.

          • 0 avatar
            highdesertcat

            krhodes1, I don’t think it all that weird to want to give your kids and grand kids the benefits of your blood, sweat and tears. It beats paying it out in taxes.

            My dad was that way. My father-in-law is that way; he doesn’t believe in keeping a whole lot of money in his bank account where the IRS can keep track of it.

            He gives bags of cash money to his four daughters to hold for “safe-keeping”, at least until he dies at which time ownership of all that cash migrates to his daughters.

            He’s got a business that owns 15 rentals, all paid for, so he gets a lot of money in every month. He just doesn’t keep it in the bank.

            And he’s not unique in that aspect. My friend the New Jersey Plumber who moved to the gas&sip where I live, transferred his house and his Plumbing business to his son who sends him cash money from the business every month in a neat FedEx package. It’s become quite a joke between us whenever we see a FedEx truck in the ‘hood.

            My younger brother and his wife live in a Manhattan apartment that was given to his wife by her parents who bought a ranch outside of Santa Fe, NM.

            My grandson who just got out of the Marine Corps is now living in Fallbrook, CA with his new bride in her parental house that was given to them when her parents moved to a village near Puerto Vallarta in Mexico.

            So the house my wife and her dad bought for this grandson this past March is now back on the market because he won’t be moving back here since he went to work for Civil Service at Camp Pendleton, CA.

            We’re not unique in this redistribution of wealth to our kids and grandkids. It beats doing it O***a’s way and redistributing it to strangers.

            And we’re far from independently wealthy! Our combined traceable income for both my wife and I is below the annual tax-filing amount, even including the social security retirements.

            Lots of people are like that. More and more Boomers become like that at the rate of ~10,000 a day.

            It’s all about giving our kids and grandkids a leg up on the competition. Things have changed since the days I was a kid and had to fight the odds to get ahead all on my own.

          • 0 avatar
            DenverMike

            @HDC – I know a few guys around retirement age that have a great way of keeping their wealth off the books. They own nicer homes on enough acreage for a barn, warehouse or both. But their hobby of choice is building and collecting rare muscle cars, hot rods, resto-mods, appreciating classics and vintage memorabilia. They’ll pass these on to their kids and grand kids while having a blast building them (or having them built) and of course, occasionally driving them. All the while, paying for everything with cash. They start with old rusting hulls in need of restoration and projects someone gave up on. They may spend as much as $10K for a basket case, but #’s matching Nomad, Cobra Jet Mach I, Boss 302, etc, but these are worth well over $100K, fully restored.

            But teaching our young to wait and save for the things they want also teaches other valuable life lessons. Like humility, living within our means and mostly, not having to fill the empty voids in our world with meaningless gadgets, bought on impulse with a swipe of a credit card. Only use the credit cards (sparingly) for things you need and pay in real cash for the things you want. And focus on the things you want the most, forget the rest and buy the best.

          • 0 avatar
            highdesertcat

            DenverMike, yes! I, too, know several old dudes who are heavily invested in classic cars, guns, ammo, reloading gear, etc.; whatever their hobby is. Sometimes all of the above.

            Because of my Portuguese/German background and heritage, gold was the big thing in my family and my dad bought up every piece of loose gold he could find. After he died it was all passed down to his kids.

            Barrett-Jackson is a perfect example of restored cars being sold off to the highest bidder, one who has an eye on an investment, like Jay Leno or the Petersen family. Ironically, it is often the inheritors who sell off their dad’s treasured possessions to cash out the inheritance.

            My passion was always guns. I started at age 12 with my very first Marlin .22 Longrifle semi-auto, and worked my way up from there to where I had a sizable collection.

            Hell, it was a huge collection!

            But after the kids left home I told them I didn’t want them to fight about the guns and reloading gear after I was dead, so they could work it out NOW while I was still alive to mediate the discussions and the shouting matches.

            It’s like anything else MY generation appears to be doing — making a distribution of the inheritance our kids and grandkids will eventually get, but making it early.

            Hey, everybody’s happy when you do it that way. Ditto with funneling cash to the kids when it actually does them some good, like when they need it NOW!

            My wife’s dad truly put his money to work sensibly and effectively so that it would not fall into the hands of the governments when he dies.

            Through his business he bought healthcare group insurance with Blue Cross/Blue Shield for all of his daughters and their families. (Even though his four daughters are currently married to retired military guys and have plenty of Government coverage)

            But I have to say, you walk in anywhere with Blue Cross/Blue Shield and you get truly outstanding care and no one asks any questions or worries about getting paid.

            Try that with Medicare or TriCare for Life. The first thing they whip out on you is an Advanced Beneficiary Notice to make sure that you accept responsibility if the gubment declines to pay for your care.

            And the gubment has been known to decline payment after you were treated even though the coding was approved before the treatment was given.

            I can only imagine what O***acare holds in store for the poor suckers forced into this second-rate healthcare system. But they’ll find out soon enough.

            The old guy is generous to a fault with his cash. He’s told me many times, “I’ve never seen a hearse with a U-Haul behind it.” so I’ll spend my money any damn way I please.

            The list of the things he has done, aside from buying houses for the kids, grand kids and great grandkids are too numerous to list here. And that’s not counting his support of the churches, Salvation Army and various Food Pantries — all tax-deductible through his business of course.

            I have adopted my dad’s philosophy of giving MY off-spring as much of a leg up on their competition as possible, through an education, transportation, financial assistance and outright cash gifts.

            It works for me. But it is even nicer to have in-laws who feel the same way about putting resources together and applying them where it does the most good.

            In our case, our kids and grandkids will always have a roof over their head, paid for and rent-free (if they want it).

            My daughter is going through an adjustment period with a new job in El Paso, TX, so to minimize her stress my wife and her dad bought her a nice house on El Paso’s West side, when she moved here from CA.

            It’s an inheritance she needed NOW, when it did the most good. No sense in her taking on debt for a house or a car or whatever.

            Lots of old people are doing just that: investing in their kids’ futures.

        • 0 avatar
          aristurtle

          Have you seen the penalties for being late on some of these “0%” loans?

          A cousin of mine got screwed on one where the fine print specified that any late payment sent the rate up to a double-digit percentage, retroactively, with “back interest” and everything.

          Makes sense to stay a couple payments ahead on something like that.

          • 0 avatar
            28-Cars-Later

            That’s a good point.

          • 0 avatar
            sunridge place

            0% OEM car loans don’t work like that…so that’s a good point if its one of those loans.

            Its a bad point when talking about 0% on car loans because they don’t work like that.

      • 0 avatar
        Pch101

        “Play with the bank’s money and not your own.”

        Unless you have some other banker who is willing to pay you interest for taking out a loan, it would be wisest to make minimum payments on a 0% loan.

        If you really want to play with the bank’s money, then the last thing that you should be doing is making an early payoff of a below-market interest rate loan. (I suppose that they must have failed to mention this sort of thing at ZeroHedge.)

    • 0 avatar
      Blackcloud_9

      I agree with your interest in the length of the term of these loans. My personal limit for financing is 60 months.
      I feel there is a tipping point on where car payments end and larger car repair bills start. I tend keep my cars for a long time (8 to 12 years) and I would hate to have the double-whammy of a large car repair and still making payments on a car.
      Also, the longer your loan term, the longer you are going to be underwater on your car

    • 0 avatar
      el scotto

      Sorry Kyree I’m wandering away from your post. You shouldn’t really pay cash for anything you can’t carry out in a bag or have delivered and/or set up to your house. There’s the opportunity cost of money. If you can earn more from an asset than the interest on your loan; take the cheap loan. If you’re buying for a business; it gets depreciated. There is no reason to pay cash for any business asset. I just wish people would talk to an accountant or a financial adviser.

      • 0 avatar
        Kyree S. Williams

        You’re alright. I know I don’t qualify for zero-percent loans; I don’t have the credit history for one. But if I did, I probably would stretch out the payments. I wouldn’t pay cash for a vehicle unless I had tons of disposable income or it was a cash-car (eg. 2008 W-Body)

  • avatar
    chuckrs

    As long as the loans aren’t sliced, diced and resold as a basis for CDOs, CDOs squared and synthetic CDOs…….
    I cringe every time I see that word tranche.

  • avatar

    The average American makes two major investments in their lifetime: a car and a house. With fewer Americans able to afford a house (due to credit, income or job security issues) the car market is on fire. After all, a car is a 6 year period rather than a 30 year period.

    Banks are more willing to give loans for new cars rather than used because if the buyer defaults, the car still has residual value and isn’t likely to have a balance higher than the loan amount.

    • 0 avatar
      28-Cars-Later

      I agree with the exception of those depreciation wonders such as Avenger and Impala Classic. If one of those gets repo’d in the first 12 months the bank is more thank likely going to take a loss.

      • 0 avatar
        ash78

        More like the first 4-5 years! Not kidding you one bit. When I was doing portfolio analysis work, it was all about “how much loss?”, not whether there would be a loss. I never once (15,000+ repos) saw the bank come out ahead in a repo situation. A great situation was a 10% loss after repo fees and auction. 35% was the norm. Minivans could push 65% losses against the current balance.

        • 0 avatar
          Lorenzo

          That doesn’t fit the narrative that those big, nasty banks make money every which way, NEVER taking a loss on anything, and never giving the customer a break. Car loans, mortgages, credit cards – they’re all major profit centers that never lose a penny. Those dirty dogs even stopped Christmas savings accounts and giving away toasters to maximize their obscene profits.

    • 0 avatar
      Power6

      I wonder if the data would support this. I know I chose the house instead and drive old cars. House market still pretty good around Boston though.

  • avatar
    raph

    It would be great if it were illegal for anybody to obtain loans with less than a 700 rating.

    The hilarity that would ensue would make for some great nightly news.

  • avatar
    Aleister Crowley

    Delinquencies down for now. This is what the media said before the mortgage crisis. Don’t worry everything’s fine. Why not buy two or three houses? Then the **** hit the fan.


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