By on December 20, 2013

Dealer Customer Stock Photo

According to credit reporting bureau TransUnion, auto finance has a bright future ahead in 2014, with easier access to credit and bigger loans for consumers.

The company expects the average debt load per auto consumer will be $17,996 by the fourth quarter of 2014, up $1,000 from Q4 2013. TransUnion’s Vice President of Automotive Peter Turek says this is good news for all involved, as high demand for vehicles will lead to more loans and incentives as both lenders and dealers compete for consumers.

Of course, one downside to this new gold rush comes from subprime lending and the delinquencies they tend to spawn in their wake, though Turek believes they will remain at levels far below those found at the start of the Great Recession in 2008 in part due to strong used-car prices. TransUnion notes that 29.8 percent of all loans in Q3 2013 are subprime, nearly five percent lower than in Q3 2008 when the bottom fell out.

Leasing will also have it good in 2014, though TransUnion was mum on how good beyond stating it would be better than 2013, where 1.3 million leases were signed in the first half of the outgoing year. Turek says that, much like strong used-car prices, leasing will also offset delinquency rates, as financing for leases are made upon new cars for consumers with above-average credit ratings.

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82 Comments on “Bright Future For Auto Lending in 2014...”


  • avatar
    LeMansteve

    Sorry, off-topic. Is the picture showing a salesman in a suit selling a car to a guy in an undershirt?

  • avatar
    Cabriolet

    +1 Tough sale.

  • avatar
    cartunez

    Sad when 7 and 8 year loans are seen as normal. I went 72 months but its because they had 0%. I figured why not use their money for the max term.

    • 0 avatar
      brettc

      If you can get 72 months for 0% and use their money to your advantage, why not?

      But a lot of people are getting long loans because they’re buying way more car than they car actually afford. It won’t be as bad as the housing crash, but this trend probably won’t end particularly well.

      • 0 avatar
        28-Cars-Later

        Should be interesting but I don’t think it would be as devastating unless a great deal of the product is simultaneously stolen/taken offshore or otherwise destroyed. If a large percentage of buyers skimp out on their payment the recourse of repossession is pretty clear. The foreclosure process from what I can tell is much more complicated and costly. The only other thing I can think of as being a significant threat is if the residual values are drastically less than the loan amounts defaulted en masse. So if Jaguar suddenly got 20% market share and if in a short time a huge amount of Jaguar loans went into receivership I could see banks taking a bath on the depreciation costs (well initially the buyers until they all declared bankruptcy).

        • 0 avatar
          brettc

          Yeah, my thought is people not making the payments and then the repo’d cars ending up on the used market which might screw up pricing for new and used cars. Probably not a huge chance of it happening, but there is the potential.

      • 0 avatar
        Reino

        What is bad for the buyers is that with a loan that long and smaller payments, the car is depreciating at a faster rate than the person is paying each month. So if a person decides he wants a new car after three or four years, he is going to be upside down on the current loan. So he rolls the balance-after-trade-in into the next 72+ loan. Then the cycle starts over again.

        • 0 avatar
          SaulTigh

          I took a 72 month note because the rate was great (at the time, and still great by historical standards) and the only way to get a lower rate was to take it down to 48 months. I’ll have it paid off next year (about 18 months early), but as I could not tell the future I wanted the lower payment for the flexibility of it, knowing that if at all possible I would pay it off early.

          After it’s paid off, I’m going to bank as much money as possible and if there’s another crash or downturn, see if I can make a car salesmen cry just to move some metal.

    • 0 avatar

      The reason we can’t get rid of rebates is because of the long term financing and ongoing negative equity.

      BTW, the guy’s shirt is a high quality Don Johnson silk T from the eighties… guys still wear those under suit coats, which the guy hung on the nearest coat rack. His wife looks like she’s proud of him for doing something important and will probably give him a reward on the way home.

      • 0 avatar

        In my years in the auto business I have never seen used vehicle values so high, even with the recent softening. Yet, negative equity is still a major issue. People are going longer between trades, but that means they are running up incredible mileage readings.

        Pre-owned values will probably drop further due to the large influx of off lease vehicles due to hit the market in the coming months. But these will be mostly high quality pre-owned, many destined for CPO certification. They should be some great buys.

  • avatar
    Wscott97

    I don’t get how someone could do a 72 month loan. The car will be out of warranty half way through the loan and it will hurt you in the long run. I rather get a car certified pre-owned and take a 60 or less loan.

    My friend took my advice last year when she was looking for a car. I told her to find out what payment she wants to make. Make that monthly payment to a separate bank account. By the time she finds the car she wants, she’ll have a good down payment and wont be struggling to make the payments. She just found the car she wants and now has $13,000 in her car fund.

    • 0 avatar
      28-Cars-Later

      Good point, although Hyundai’s warranties ostensibly last 120 months from purchase which would cover that period.

    • 0 avatar
      bikegoesbaa

      Do you expect that many bought-new cars require significant repairs during years 3-6 of ownership? I don’t.

      If not, how do you expect a warranty terminating before the note is paid off will hurt the owner in the long run? An out-of-warrany failure costs the same to repair regardless of whether the car is still being paid off, right? Seems like they’re two independent costs.

      Also, remember that most truly expensive repairs are due to engine or transmission failure and all new car warranties that I know of cover the powertrain for 5/60 rather than 3/36 which further reduces the owner’s exposure.

      • 0 avatar
        Wscott97

        Good point that cars are much better than they were 10+ years ago. but even after 6 years, there’s still parts that you’ll have to replace or repair (with or without a warranty) Personally I would prefer to have a car paid off before you start needing repairs. The last thing you want it to make a $450 payment then have to have a $450 repair bill the fallowing week.
        It’s just a nice extra insurance to have the car still under warranty. like you said. most truly expensive repairs are due to engine or transmission failure and all new car warranties that I know of cover the powertrain for 5/60. (you’ll still have 1 more year of payments)

      • 0 avatar

        Buy a service contract but shop carefully for it. Transferable service contracts can add value when you want to sell your trade. They don’t add value when you trade it in because the dealer probably isn’t going to tell the new buyer it is already covered, preferring to sell a new one. That’s one reason to contact the previous owner of a preowned vehicle, to find out if there is already a transferable service contract on the car. Dealers have issues giving out contact information for people they have done business with, as well they should. But a Carfax tells you that information anyway.

        If you want to have some fun with an F&I manager after buying a pre-owned vehicle, wait until she/he brings up service contract and you explain you don’t need one because the car already has one you can transfer to yourself. As a practical matter, there may not be a lot of time left on the service contract and you might want to go ahead and buy one anyway, but you set them back on their heels.

        • 0 avatar
          28-Cars-Later

          So a buyers comes and looks at car X. He gets the carfax and politely excuses himself with this information to contact the previous owner about warranty info?

    • 0 avatar
      ellomdian

      I wanted to do 60 mos on my (used) car last weekend, but I managed to score half a point because the bank wanted a 72 month note. Granted, it’s my first car purchase ever (at 29, woo hoo!) and my plan is to own it for at most the 3 years of the warranty, but I have to wonder how many of these 72 month loans are actually getting paid off at the 6 year mark.

      As for the saving monthly payments for a down payment plan – if you can afford 6 mos (or significantly more than a year for your friend, I would assume…) of planning and saving for a major purchase, that’s awesome. You get a great rate, and are generally never upside down on the purchase. Most buyers, especially on the 72-month end, need a car within the next 30 days (if they are lucky) and aren’t prepared to part with 5 figures of cash in the short term. It’s endemic of the way we handle money as a culture, but its reality.

      • 0 avatar
        Wscott97

        ellomdian, It’s great that you got a half a point off with a 72 month loan. I would suggest rounding your payment up and getting it paid off quicker. You’ll save more in interest and get to enjoy your car longer paid off. Plus it also looks amazing on your credit report.

      • 0 avatar

        Most vehicles are traded in before they are paid off, and carry more balance than value.

    • 0 avatar
      Reino

      People that do 72 month loans are people who look ONLY at the monthly payment, nothing else. Warranties, trade-in value, etc. are all afterthoughts.

      (exceptions are those who are ROI-savvy and are using the money elsewhere to earn, but they are a small fringe)

  • avatar
    Preludacris

    Just can’t see how it’s a good thing to help people buy things they can’t afford.

    • 0 avatar
      28-Cars-Later

      I don’t think the industry has a choice, as it cannot provide products people can genuinely afford and still stay afloat.

      • 0 avatar
        CoreyDL

        “You see, the real value of a conflict – the true value – is in the debt that it creates. You control the debt, you control everything. You find this upsetting, yes? But this is the very essence of the banking industry, to make us all, whether we be nations or individuals, slaves to debt.”

      • 0 avatar

        16 million people a year buy new vehicles and 45 million buy pre-owned. Someone is affording something.

        Amazing to me is those who will take a 72 month conventional finance contract instead of a 39 month lease for about the same monthly payment, with someone else guaranteeing the vehicles value at end of term.

        Those who finance long term and trade in with negative equity have to have cash or buy something with a rebate….. if it has a rebate, it also has an element of “distressed merchandise” associated with it. But then the high demand low supply vehicles always command a higher price…. and usually a higher resale value.

        • 0 avatar
          28-Cars-Later

          Due only to generous credit. Even 60 months is somewhat considerate for a five figure loan on a depreciating product and now the norm is 72?. If banks required 20% or 40% of principle in down-payment the industry would collapse in a week (or switch to a high percentage of leasing) because a high percentage of Americans simply do not have any money saved for a number of reasons. You said it yourself, many who finance have negative equity at trade time. One could argue its because of the length of the loan term or the small down-payment, or the fact they bought vs leased and that may all be part of it, but I argue its because the cars are too damn expensive out of the factory relative to the economic realities of their consumers. The industry cannot or will not build product to accommodate a realistic price, hence negative equity in the first place.

          Take the Ford Fusion for example. In 1993 its equivalent was the Taurus and while the Taurus was assembled in the US it MSRP’d at $15,700 or $25,323.07 in 2013 dollars and lets assume transaction prices were at MSRP in 1993. The 2013 Fusion S is $22,495 MSRP. While there is about a $3,000 2013 dollar price difference between the two, isn’t the Fusion assembled in Mexico for wages are about $5/hour vs the equivalent 1993 wage of lets say $30/hr in 2013 dollars? Wasn’t NAFTA supposed to make things much cheaper (aside from also exporting US jobs)? According to this link (http://www.davemanuel.com/median-household-income.php) US family median income has only gone up about $2200 dollars between 1993 and now and yet the labor/wage cost has gone down about 80% on the Ford D segment sedan in the same period. Seems like there’s some wiggle room there to deliver a better priced product that’s not being utilized… hmmm.

          http://autos.msn.com/research/vip/pricing.aspx?make=Ford&model=Taurus&year=1993

          http://www.automobilemag.com/features/news/2013-ford-fusion-carries-22495-msrp-official-configurator-live-159595/

          http://www.davemanuel.com/median-household-income.php

          http://www.bls.gov/data/inflation_calculator.htm

    • 0 avatar
      LeMansteve

      It’s not a good thing, but it sure is profitable.

  • avatar

    Always Be Closing

  • avatar

    Traditional lending practices – specifically the “30 year fixed” – are being challenged by the inability to guarantee buyers will have jobs for that period of time and be able to pay the mortgage. Some of you scoff at the 74 month loan, but you’ve gotta remember… some people buying these cars are gonna end up keeping them. Consider them lucky to have a car that will last 74 months. At least Hyundai is willing to offer abnormally long warranties to get you to choose them over the Japanese.

    • 0 avatar
      CoreyDL

      The banks cannot have such guarantees – that’s the nature of risk taking in lending. Sheesh.

      It takes 30 years to pay for a house, they’re expensive! I’m in year 2 of 30 now.

      • 0 avatar
        cartunez

        The entire concept of the 30 yr mortgage is out of sync with the times we live in.

        • 0 avatar
          CoreyDL

          What would your recommendation be?

          • 0 avatar
            bball40dtw

            3/1 ARM, stop paying on it, wait 4 years for stupid BofA to foreclose, than have your spouse buy it from BofA at half price or less.

          • 0 avatar
            bikegoesbaa

            Rent.

            Even at today’s lower interest rates, somebody taking 30 years to pay off their house is paying almost the entire financed amount over again in interest. Nuts to that.

            This home buyer is also giving up the temporal and geographic flexibility that comes from not having a six-figure interest in something that is stuck on one particular piece of dirt.

          • 0 avatar
            bball40dtw

            I like renters, they give me income every month on a paid off townhome.

          • 0 avatar
            CoreyDL

            Your “entire financed amount over again in interest” is just wrong, ESPECIALLY at these interest rates.

            Assuming first homeowner at 3.875% for 30 years, you’ll pay $338,572 total on a 200k loan. That’s 69% of the value over again. Not the entire financed amount.

            Go rent for 30 years. That $1,200 a month rental payment for an equivalent home/apartment (if you’re lucky). What do you end up with at the end? $432,000 in your landlord’s pocket. And you own zilch.

            Yeah, that’s better.

            At the end of the loan, you have a paid off asset. Go sell your lease to someone, see how that goes.

          • 0 avatar
            28-Cars-Later

            @bball

            Nice scam on the ARM. What I’d really like to do is the feudal system. I’ll go seize a small town by force and declare myself lord of the land. Eventually the plebs will accept it and in a generation it will be the norm.

          • 0 avatar
            bikegoesbaa

            I said *almost* the entire financed amount. If you prefer, feel free to substitute “a significant majority” of the amount financed. Doesn’t change the fact that you’ve paid the bank and the tax man the better part of 200k for the privilege of being stuck in one place for the next 30 years.

            Maybe it’s different where you are, but anyplace that I’ve ever lived to rent a house costs 2/3 as much each month as a 30 year mortgage for the same place; not even accounting for taxes and maintenance/repair.

            Of course, since I am free to change houses whenever I want I can drop my rent further because I don’t need to pay for space and amenities now that I won’t need for 15 years. The day I need more bedrooms I can just find a place that has them; in the meantime I’m in a cheaper smaller house.

            I now have that cash free to invest in other things with a lot higher paypack than a house.

            So if my rent is 2/3 of your mortgage, after 30 years I’ll have $144k in straight cash if I just bank the money. Plus the savings from paying no taxes, plus the savings from doing no maintenance or repair, plus the savings from not paying realtor fees or closing costs, plus the savings from not owning a “family house” for a family that does not yet exist, plus the returns from the investments I made with all the cash I saved by not owning a house.

            Yeah, that *is* better. I’ve run the numbers both ways and have a hard time making a financial case for home ownership; at least in this part of the country.

            I’m also not tied to the fortunes of any one particular area or employer. I wonder if the people who bought houses in Detroit 30 (or even 10) years ago think it was a really grand idea now?

          • 0 avatar
            kenzter

            You haven’t factored in the fact that rent will go up. My mortgage payment won’t, save for the escrow portion for taxes and insurance.

          • 0 avatar
            ellomdian

            There was an article (I think it was in Forbes) a few years back (post-crash) and it challenged the ‘home ownership as financial stability/growth’ argument. The premise was that few (if any) current buyers should reasonably be in a traditional 30-year based on their lifestyle, and the reality was in many cases, if you rent at a competitive rate and invest the difference between the rent and a 15-year on the same property, you generally at least match the market.

            Also, while you can lock in a term on your house that means the payments won’t go up – there is always that annoying asterisk at the bottom that says investments can go down as well. The best part of renting is that when the real estate market is in the toilet, you get your pick of the litter.

            Granted, there is a strong argument that “Mmmm, it’s good to have land…” (Thanks Stewie!) but much of that traditional wisdom is the same that drives people to cash out and buy a pile of gold. I guess it comes down to whether you expect the social systems we have set up over the last 2-300 years to be here in 30 :p

          • 0 avatar
            bball40dtw

            28-

            Its only funny because its true. Some of the loopholes are closed, but I’ve seen that situation happen at BofA. The week I left, I talked to a customer that hadn’t made a mortgage payment since 2007. I even verified it in the system. He was still in the house but it was worth 10% of his original purchase price. I knew BofA didn’t want the house. It might cost them more to take possesion of it than just writing it off.

            bikegoesbaa-

            As long as you aren’t in the city of Detroit, most people are up from ten years ago. If you bought five years ago, maybe not. If someone thirty years ago thought their property in Detroit was going to continue to appreciate, they were delusional. My family owned a bar in the city, and the liquor license and fixtures were worth more than the bar’s building in the 90s.

          • 0 avatar
            28-Cars-Later

            @bball

            So what would legally happen to the man who took a 90% [!] loss on this property? Would he just get a deed in the mail if it was charged off?

            @ellomdian

            Stewie was certainly on to something but the problem is you never really own your land. Besides the obvious taxes and fees and repossession of said land for failure to submit to the gov’t tribute, there is also the fact your land can be seized under a number of statutes. I can’t find a good link but from what I was told there is a federal statute in which if it is proven (or possibly alleged) major drug activity has occurred on a property *at any point in history*, DEA can legally seize it. So if your house was the site of a major coke smuggling operation in the 70s long before you owned it, in theory it could be seized.

            “Asset forfeiture is a form of confiscation of assets by the state, pursuant to law. It typically applies to the alleged proceeds or instrumentalities of crime”

            http://en.wikipedia.org/wiki/Asset_forfeiture

            “I guess it comes down to whether you expect the social systems we have set up over the last 2-300 years to be here in 30 :p”

            We can guarantee cash benefits as far as and whatever size you like, but we cannot guarantee their purchasing power – Alan Greenspan

          • 0 avatar
            bball40dtw

            28-

            Anything could happen. It depends how the bank sells the mortgage and to whom. I think in this case the bank sold the IOU to a collection agency, but it became an unsecured debt. The former customer was in the process of claiming that BofA didn’t have an interest in his property because they sold the promissory note but not the mortgage.

          • 0 avatar
            highdesertcat

            bbal, well put! There is something very comforting about people actually paying you money to have a roof over their head.

            Without renters, my lifestyle would be the pits.

          • 0 avatar
            DenverMike

            Renting (forever) is good, but owning (at a young age) is better. I wasn’t that young, but at 25, I saved 1/3 the price of the style of ranch I wanted to buy. Found a seller that would carry the rest (full asking) and zero interest for 10 years. He was salivating at the lump down payment. Easily paid it off in 5 years, but asked for 10 years just in case. Living rent free for the next 15 years, I’ve paid cash for rental property, started a business from scratch and bought another. Just a different approach than most is all.

          • 0 avatar
            28-Cars-Later

            You and I share a similar mindset DenverMike and if I were offered a similar position I would do it. Trouble here is a basic condo is about 90-100K starting around $2200 in annual taxes and HOA varies. A nice starter ranch is in the 120s+ with taxes starting at 3 and since almost all construction in this part of the county was between 1947 and the mid 60s, nothing is really new either. Townhomes are scarce although there is a new development about 3 miles from here, starting in the 200s, taxes I imagine starting in the 3s, possibly 4s depending on how that township does its millage.

        • 0 avatar
          Reino

          Some people don’t mind the concept of staying in the same place for 30 years. My parents did it. Now they own two houses outright and are on their third mortgage.

        • 0 avatar
          Hillman

          Yea but with interest rates where they are it makes no sense to do it shorter. Take the money you save from doing a 15 year rate and invest it in a roth and pocket an extra 5 % a year.

        • 0 avatar
          Lorenzo

          In the 1930s, you bought a house with a down payment, paid nothing for 6-8 years and paid it off with a balloon payment. The 30 year mortgage was considered a more rational plan, with the banks protecting themselves from inflation by front-loading the interest. Now both buyer and lender have to deal with something that was never supposed to happen: property values actually going down. What’s the new, improved solution?

      • 0 avatar
        cartunez

        BTW banks have no risks…when they fuck up they will get a bailout via the taxpayer but don’t worry the government regulators we pay for will “fine” them and maybe they will lose their respective jobs

        • 0 avatar
          highdesertcat

          Bailouts, handouts and nationalization are the new ‘selective’ normal in America.

          So are “loans” that will never be repaid like Solyndra, A123 et al.

          This is what the majority in America wanted. This is what they voted for. Not just once, but twice. I say, let them pay for it.

        • 0 avatar
          Lorenzo

          Banks DO have risks, google a list of banks that have been taken over or forced to be merged with a healthier bank. The bank owners lost their investment, though depositors were protected. Sure, there are bailouts of sorts, but the government has a powerful interest in a healthy banking system – the economy runs on credit, and collapses when banks can’t provide enough of it. Our government – ANY government – considers bailouts preferable to economic collapse, though they would rather see consumers pay a bit more than openly use taxpayer money to keep the banks in operation. That latter course is politically untenable, so back door measures like negative interest rates are used wherever possible instead of bailouts.

      • 0 avatar

        IMHO one should not buy more house than one can afford on a 15 year mortgage. They are much easier to get and carry a lower interest rate. AND you’ll be actually paying for house, not so much the loan money.

    • 0 avatar
      redav

      If the current average age of the US vehicle fleet is something around 10 or 11 yrs, why consider someone lucky to have a car that lasts 74 mo?

      • 0 avatar

        The average age of cars on the road now are at about 11.4 years. Most of those weren’t purchased new. Most people don’t properly maintain their vehicle. They’ve been forced to make repairs instead of buy a newer one due to the economy.

  • avatar
    April

    Question. What credit score does one need to qualify for one of those super low interest loans most new car manufactures are offering these days?

    • 0 avatar
      bball40dtw

      Where I work, its 700-740 depending on the type of loan. Many auto finance comapnies have a different scoring method than a traditional bank though.

      • 0 avatar
        April

        Cool. My three credit scores range from 723 to 746.

        • 0 avatar
          highdesertcat

          bball is right. But in my area you can also get a better loan from a credit union than a bank or dealer-affiliated lender.

          With a 700-740 rating in my area you can get financed by a credit union for 84 months at 120% of the value of the new vehicle you buy, all other liabilities considered.

          2014 looks very good from many economic stand points, if you have a job.

          • 0 avatar
            April

            If I pulled the trigger on a new car I’ll probably put 15-20% down and go with a 36-month loan.

            Must be a responsible car buyer… :)

          • 0 avatar
            highdesertcat

            April, this is an excellent time to buy a new 2014 model, regardless of brand. Excluding Christmas day, the remaining days of this month will see some nice deals. Dealers want to move stock now. Not wait until next month.

            Just don’t act too eager. Walk away if you feel they are patronizing you. See how quickly they call you back.

            Best approach IMO is to get an eDeal or ePrice from them over the internet before you go in person. Watch out for the padding of the bottom line.

            It is the dealer’s sole function in life to part you with as much of your money as they can, and you let them get away with.

            Good luck!

    • 0 avatar
      Reino

      While you initially do need a high credit score, you can get it on average credit as your ability to stay strong at the table. If you continue to reinforce that you will walk away unless a certain interest rate is met, they will eventually come down to it.

      Remember, YOU can buy that car next month. But that salesmen needs his paycheck now.

      • 0 avatar
        Wscott97

        I just bought a condo in SoCal and going rent is $1800 in my building. My mortgage, insurance and taxes is $2000. Even though I’m paying $200 more than the going rate for rent, who knows what the rent will in the next 10 years. I have a few friends who’s rent is being raised by a couple of $100′s due to recent renovations. In 7-10 years, if I decide I want to buy a house; I’ll be looking forward to collecting rent on my place.

        • 0 avatar
          Lorenzo

          In California there are usually laws that limit sizes of rent increases so owners can’t use the tactic to drive people out. It sounds like your friends’ landlords found the “substantial changes” loophole.

      • 0 avatar
        April

        Reino @ Good to know. I’m a decent Poker player. ;)

    • 0 avatar

      Depends on the brand of vehicle. Sometimes an OEM captive will open up the best subvented interest rates to the first three tiers, but mostly just to tiers 1 and 2. Sometimes only the top tier.

      But there’s more too it than just credit score. Job time, previous car loan history, job time, mortgage experience, debt to income ratio, etc., all play a role.

  • avatar

    I’ve seen 750 FICOs turned down because DTI was way out of whack. Lenders see that as a ticking credit time bomb.

  • avatar
    AJ

    That photo is never how my wife and I look after buying a car. We both look rather ****ed off and are in no mood for the games the ***hole in finance is yet to play. I think about that every time we talk about replacing the wife’s 10 year old SUV when we use to buy a new car every five years.


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