By on December 6, 2013

01-cadillac-dealership1

Though the calendar is about to change to 2014, it appears to be 2007 all over again in dealer lots and showrooms nationwide as a record number of auto loans with low interest rates were signed during the third quarter of 2013.

According to Experian, the average amount taken out for a new car loan this quarter was $26,719, the highest amount financed since the start of the Great Recession in 2008. As a bonus, each loan for a new car holds an interest rate average of 4.27 percent; used car loans, on the other hand, hold an average rate of 8.63 percent.

Reasons for the record loan amounts include the rising cost in new cars overall due to buyers adding extra content and features that best suit their needs and wants, as well as interest in luxury vehicles, whose sales have gone up 11 percent this year due to leasing programs feeding fuel to the fire.

In exchange for taking out huge loans, consumers are opting to stretch out their notes for as long as possible to keep payments low; the average payment in the third quarter of 2013 is $458. Around 40 percent opt to pay off their loan for 65 months, while 19 percent choose to spend anywhere from 73 to 84 months doing the same.

Get the latest TTAC e-Newsletter!

92 Comments on “Record Auto Loans Taken As Interest Rates Drop...”


  • avatar
    raph

    Damn a 7 year car note…. Not that I can blame people with stagnant wages and the increased costs of vehicles I’d hate to pay for a long time on something deemed “basic transportation”.

    • 0 avatar
      Syke

      At those prices, they may be “transportation” but they sure as hell ain’t “basic”.

      • 0 avatar
        raph

        True, my old man before he passed away purchased a base F150 with the 3.7/A6 and I was impressed with the level of content the truck came with.

        Then again, I remember basic transportation only coming with rubber floor mats, manual windows, manual locks and a heater.

  • avatar
    sportyaccordy

    I mean… me and my wife got a used car loan with a rate of 2.63% on her Rabbit. We could have paid cash (the loan was only for $6K) but at that rate? For a used car? Kind of a no brainer.

    • 0 avatar
      Carlson Fan

      Exactly, the wife could have easily paid cash for her new car puchased in Nov. but financing deals convinced her not to.

    • 0 avatar
      CarPerson

      0.9% for a 36-month $32,500 loan on a used BMW. Total interest = $465.

      BMW Dealer: “Oh, by the way, BMW Finance has a $500 Holiday bonus towards your first car payment.”

      Me: “So BMW will be paying me $35 to use their money for 36 months while my money is tucked in bed reproducing at the rate of 12-17% annually?”

      BMW Dealer: “Yes.”

  • avatar
    ash78

    4-5 years was the normal term for many years, even back in the 70s/80s when I was first aware of car financing. But our cars back then required a lot of regular service, and it was not unusual to see huge repair bills during the finance term.

    I can see a note making sense today at up to 7 years. If you think about matching the financing to the usefulness of the asset, I could imagine even longer. However, the key problem is that depreciation on cars is still pretty steep and, IMO, hasn’t flattened out commensurate with the longer lives of modern cars. Buy gap insurance.

    In other words, the old adage about losing 20% when you drive it off the lot is still as true as ever. Unless it’s a Civic, in which case it somehow gains 10%.

    • 0 avatar
      krhodes1

      Or just put enough money down to never have to worry about being “upside down” one the loan.

      My methodology has been to take the longest term I can get for the lowest interest rate, but then I pay it off early. It’s a somewhat irrational personal thing, but I refuse to make payments on something that is not under warranty, so I want it paid off when the warranty runs out. But I like the flexibility of being able to make a lower payment once in a while. And I put enough money down that between discounts and down payment the initial loan is no more than 75-80% of MSRP.

  • avatar
    DeadWeight

    And cue Ruggles, the National Association of Automobile Dealers’ official squawking parrot, with the incessantly repeated “Squawk! All is Well!” in 3…2…1…

    • 0 avatar
      360joules

      No answer yet from Ruggles. Perhaps he’s pimping medical equipment, or orthopedic supplies such as artificial joint, or organs/bone grafts harvested from the finest of Chinese political dissidents…

      • 0 avatar
        3Deuce27

        @> 360joules

        Why would Ruggle want to comment here and subject himself to uninformed, thoughtless comments from mentally and socially handicapped A-holes sitting in week old shorts in a damp corner of their mothers basement, staring at their puter screen from eyes that haven’t seen the light of day in months.

        Whose only exercise is weakly and petulantly climbing the stairs to have their mother hand them their latest pizza order as she wouldn’t dare go down the stairs and wade though the foul detritus of a useless, misbegotten life.

        Ruggles has an involved, useful life, and has better things to do then put up with BS from cowardly keyboard toads.

        A flurry of activity disturbs the stench and squalor of the damp basement as the toad(s) in response, pound their keyboards to malign another commentor who definitively describes their useless life. Their self-serving mindset of omnipotent superiority over the minions, cannot, shall not, be challenged. Finished, their magnificently crafted, superior and unchallengeable response, sent on its way to corrupt, insidiously, the usefulness of the WWW.

        Let it fly Toads.

  • avatar
    OldandSlow

    Those 6 to 7 year loans are a real head scratcher. The debtor will be upside down on that loan for a while unless they have a 25% down payment or trade in.

    Those buyers should of bought maybe a three or four year old used car.

    • 0 avatar
      OldandSlow

      I’m sorry. I meant to say a pre-owned vehicle. It has a better ring to it.

      • 0 avatar
        BigDuke6

        You also should have said, “Those buyers should HAVE bought…….”. It’s grammatically correct.

        • 0 avatar
          Lorenzo

          Actually, it’s a misspelling of “should’ve”, a verbal contraction of should have. The oral language morphs faster than print and is driving changes in spelling and grammar. I wouldn’t be surprised if “should of”, “could of”, etc. become the accepted norm. Everything the old geezers learned in the ’40s and ’50s from those blue haired ladies with flower print dresses and orthopedic shoes is falling by the wayside now.

    • 0 avatar
      ash78

      Very true, but if they’re keeping it for at least the life of the loan, it becomes less relevant. It always amazes me that (barring any major accidents or personal catastrophes) that people trade in or sell cars that still have loans on them. It’s very common, it’s just confusing. If it weren’t the norm (and encouraged by car companies), I think it would be considered universally idiotic.

      • 0 avatar
        VoGo

        I think there are 3 scenarios that cause people to trade in while they still owe $ on their original loans.

        1. There are the people who are easily bored, and just want a new car every 2-3 years. An afternoon of bliss, but then the new car smell wears off, and they are looking for the next big thing, not realizing that they would be equally happy with the car they originally had, with the added bonus of a fat savings account.

        2. There are those who sign up for a 7 year loan (zero down of course), but who have a life change after 2 years. Loss of job, divorce, new baby, illness, whatever. They are upside-down on the loan and really stuck.

        3. There are those who are willing to stick it out for the full 7 years, but then after 4 years realize they need $1,500 to replace the tires, brakes, battery and anything else that wears out. Rather than save $50/month they went to Applebees. And now, the mechanic needs to get paid. So, they trade in the car on a new one, and never get off the payment treadmill.

        In all 3 cases, consumers aren’t building wealth. But car dealers are.

        • 0 avatar
          ash78

          Precisely. Cars are a huge eroder of wealth in the aggregate — something that can be a worthwhile tradeoff for a true enthusiast with good financial means…but for most folks, it’s just a drain (often an unexpected drain when they have to realize the depreciation, or when a major repair surprises them).

          For the people who get bored every 2-3 years, either lease the car or finance it for 2-3 years and suck up the big payment.

  • avatar
    ant

    I financed a Acura TSX last year for $29,300. 6 year loan, $442 monthly payment.

    I’m 19 payments in now, (18k miles) and owe approximately 22k on it yet.

    Kelly blue book values it somewhere between 17.5k and 22.5k depending on private party/trade in, and condition.

    I prolly bit off a rather big bite with the payment, and may end up extending it out to lower the payment one or two years out from now…

    I certainly expect the car to last a long time, and keep looking for the depreciation to slow down on it.

    Looking back on it now, I shoulda picked a car that was about 5 grand less, or picked a hybrid for more fuel savings. We were looking at the lexus CT at the time, but I wanted a stick, and that car is rather small.

    Interestingly, a chevy volt would have fit our situation nicely with our cheep electric rates, and 29 mile round trip commute to work.

  • avatar
    doctor olds

    I bought my first new car in 1972. It was a minor flood damaged/factory repaired ’73 Cutlass S Coupe offered for a company used car price of $2,933, including tax.

    The norm for car loans then seemed to be 3 years, iirc. I set up my own loan, borrowed $3,000 not being sure what the bottom line was on my way to the dealer. I got a check for $67 back from the Olds dealer. My payments were $96/month, a bit less than a week’s take home pay for workers on the line at Oldsmobile making $3-4/hour. I started at line rate, $3.43/hr. in ’69 and took home $103 a week.

    • 0 avatar
      mikey

      I started on the line in late 72 at 4.18 an hour. With 10 to 12 hours a week mandatory O.T. Over 200.00 a week, after tax! The hourly personall dude give us a big lecture,about taking on huge car payments. “Ya might not be here long enough to make the first payment boys”.
      I had to move back into my parents house,and pay Mom board. The guys I was living with, would party all night. Makes getting up at 6:00 AM pretty tough. Moms cooking, laundry, and packed lunches, for twenty bucks a week. Well worth it!

      Up till then I always lived frugally. Never had a loan, or even had a bank account. I couldn’t spend all the money I made,so it piled up on my dresser. The oldman spotted the big pile of cash,and thought I was dealing drugs.

      I had enough cash to pay for a 69 Charger, plain jane, with a 318 Automatic. The guys at work told me “not a good plan son” They sent me to some guys buddy at the Chev dealer.

      So I spy one of these fine looking 73 Monte Carlo’s in the showroom. Buckets, blood red, with a white top. So the salesman says” how much money can you spend”? I’m a dumb 18 year old kid, so I tell him I got almost 2000 in cash.” Well! with that sort of a down payment, we don’t even need a co sign.

      Well we can put the balance over 3 years. You can pick that car up after work tomorrow. Just sign here. I wasn’t that dumb of a kid. The hourly personal dudes words were still ringing in my ear.

      So Igo to work, and talk it over with the older guys. Some of these guys were in their 30s. From my perspective,they were old sages. Their advice pretty well echoed the personal dude. “That’s 36 payments boy, think long, and hard.

      I ended up paying cash for a 69 2dr post Chevelle.

  • avatar
    7402

    Simple formula: never sign a car loan with a longer period than the factory warranty.

    • 0 avatar
      sirwired

      But why?

      The length of the warranty has nothing to do with the reliability of the car; it has to do with marketing.

      Cars for which a consumer might have an expectation of poor reliability (i.e. Hyundai when they first rolled out their 10/100k powertrain warranty) may have a long warranty to convince consumers to buy the car.

      After all these years, the standard warranty on a Toyota is still 3/36k. Consumers expect that to not be a be an issue, so they don’t demand Toyota provide something longer. Sure, Toyota could provide a longer one for not a lot of money, but they don’t need to.

      It seems pretty reasonable to me for a consumer to take the tiny risk of getting a loan on a Camry longer than three years.

    • 0 avatar
      SCE to AUX

      @7402: Leases fit your model nicely.

      • 0 avatar
        krhodes1

        He didn’t say he wouldn’t keep the car past the warranty. Just sounds like he is like me – I will pay interest on or to fix a car, never, ever both at the same time. So I will pay off the car when the warranty is up. On the other hand, I also won’t buy a car I could not have paid cash for (though that would mean taking money out of the market), so I can basically pay it off anytime I want anyway.

        I go for the longer term though to lower the amount I HAVE to pay. Nice to have the flexibility some months – this year I had three cars registration all come due the same month – $1200.

  • avatar
    kvndoom

    I got the KIA (replacing the wrecked Focus, RIP) at 1.84%. Insurance settlement will be paying for about half of it though. Capital One is gonna sh1t when it gets its first payment and it’s $6000. :P

    Just refinanced the Juke at my credit union for 1.99%. It was already below 3% but the bank was in Cali and I wanted to get the title to a local bank since we plan to sell Froggy sometime next year.

    I don’t even make down payments anymore. I busted my ass over the last 10 years to get a good credit score. Lend me your cheap money.

    Shop wisely, buy used cars whose purchase price is damn close to what you could sell it for if you had to, and pay extra every month. I could sell both the Forte and the Juke for a profit.

    • 0 avatar
      Waterview

      Sorry to be pedantic, but in your example, you wouldn’t be selling the Forte and the Juke “for a profit”. You would simply be selling them for more than the outstanding loan balance.

      If you were able to sell them for more than the total of your original down payment, plus the total of payments made to date, plus the residual equity in the vehicle, then you would make a profit.

      • 0 avatar
        kvndoom

        Well, I can’t recoup gas or insurance or prperty taxes, but if you want to just consider purchase price, then yeah, since I look at nationwide prices on cars.com and Auto Trader, I’m fairly confident that with patience I could get at least $17k for a 2011 Juke SL with 26k miles, and at least $12.5k for a CPO 2010 Forte Koup SX with 45,000 miles. Technically it isn’t “driving for free” but in my book it’s damn close.

        Zero down payment, zero trade-in for both.

  • avatar
    Chris FOM

    Some of these numbers are mind-boggling. If you need a 7-year loan to pay off a car then you simply can’t afford the car. Yes, with incredibly low interest rates you’re effectively playing with house money as long as everything goes well, but you’re upside down for a huge portion of the loan. If you don’t have gap insurance, one bad wreck and you’re still writing payments on a car that no longer exists. I bought a CPO 335 a year ago with 100% financing (wanted to sell my old car myself, but couldn’t go without a car if I sold the prior one first), but I financed for 3 years only and at 2.69%. Then I’ve been making above the minimum payment every month, sold my old Jeep Liberty and immediately put the entire check towards the loan, so I was upside down for only a few months, and only for the difference between the car being a CPO and simply being used. I’ll have it completely paid off in just over 2 years.

  • avatar
    sirwired

    I’m not real worked up about either of those numbers. Average transaction price isn’t that far out of whack with general inflation, and you keep getting more car for your dollar every year. If you want to spend what you would have spent 10 inflation-adjusted years ago, you can still get a car nearly the same size and power as that 10-year old unit. You might be trading an Accord for a Civic, but nameplates keep getting bigger/more powerful, so you won’t actually lose that much capability.

    As far as loan length goes. Yes, if you take out a seven-year loan, you’ll be upside down much of the time (probably at least four years.) On the other hand, absent you wrecking it, it’s pretty certain (if not 100% sure) the car will last at least seven years without requiring any major repair. Factor in a small bump in interest to cover the gap in case of default, and you are good to go.

  • avatar
    NN

    Last new car we purchased was a 2010 Malibu LTZ, financed for 60 months with 0 down. One would think a domestic would be quick to go upside down, but after all discounts we purchased it for under $23k new, fully loaded ($29k sticker), at a low interest rate. Today, a little over 3 years into the loan, we owe $8600 left on the car. I really don’t think at any moment I was actually upside down on the vehicle, provided that we don’t trade it into a regular dealer but in the least sell it to Carmax. If you negotiate a strong deal up front then you can take all the cheap money you can get.

  • avatar
    jacob_coulter

    People are bad at managing their money, nothing new there. I’m a car enthusiast, but I think car purchases/loans are usually one of the dumbest things consumers do.

    There was about a 12 month period after the financial crisis where people looked like they were actually going to be more frugal, but the government did everything in their power to incentivize people living beyond their means.

    A 7 year car note is absurd, if that’s what it takes to get in the vehicle of your choice, you need to be buying a different car. I would love to see the numbers on how upside down these people are when they go to their next loan.

    What people do with their money is up to them, I just don’t like to see policies that encourage living paycheck to paycheck, I think it hurts society as a whole to have a nation of people that are slaves to debt.

    • 0 avatar
      mikey

      I have to agree with “Jacob”. We took a 48 month loan out for my wifes 2001 Grand Am GT. She tired of it after about 3 years. She took my paid for 2003 Jimmy for a ride one day, loved it and I got stuck with the Grand Am. I made the 48th payment on the Grand am,and drove it for another five years.

      • 0 avatar
        DeadWeight

        What has been stated above is why leases are being so aggressively pushed by manufacturers and dealers.

        The rentier model of vehicle usage -vs- ownership is much better for the industry, as it increases the odds that buyers stick with the same brands & dealers, due to a built in convenience factor, and ultimately, is far more profitable for both manufacturers and dealers, even as it increasingly turns “owners” of vehicles into mere “renters.”

        The last thing manufacturers want are owners who buy & hold durable, reliable vehicles, especially if they are even mildly able or likely to service/maintain those vehicles themselves; they want a continuous, predictable model of turnover that they can reliably depend on to increase their revenue in terms of production, sales, maintenance/service and repairs.

        • 0 avatar

          The only problem with that model is that all those lease turn-ins have to go somewhere. At some point, when there are way too many clean 3 year old cars on the market, the value of those cars go down, and the price goes down, and a 3 year old used car starts looking awfully attractive to some buyers. The manufacturer starts cutting their own throat by competing with themselves against their own used cars.

  • avatar
    Steven Lang

    Or you can buy a perfectly nice, fun to drive, used car from the Y2K to Y2K+3 era for anywhere between $2500 to $5000.

    Put on good tires and upgrade the suspension if you wish (to get the new car feel).

    Pay less in taxes and insurance. Lower depreciation costs. Lower opportunity cost. Far less fear with doing basic auto maintenance.

    Keep it well kept for 5 to 7 years. Sell it for $2000, and invest all those payments you never made in something that actually appreciates in value.

    (The TTAC faithful look around, wait for a silent moment or two, and then yell out… “Naaaahhhh!!!!”)

  • avatar
    mikey

    Right you are Steve! That’s the “smart” way to do it. But it ain’t no fun.

  • avatar
    DeadWeight

    Here’s my model -

    Car bought new without any loan or financing in 2005 for $22,550 OTD (7.4k off MSRP btw).

    I can sell car to neighbor 3 doors down right now for at least $8,500 and probably a grand more, since he knows I am meticulous about upkeep on my vehicles, my car looks and drives like its brand new (paint is in better condition than most vehicles that are 3 years old), and I keep all service records even for things I do myself (oil/filter changes, brake pads/fluid bleeding & replacement, differential oil swap, etc.).

    I’ve probably spent, at most, an average of $200 per year in 8 years I’ve owned the vehicle on maintenance (this includes two sets of tires – one set of BF Goodrich g-Force Sport COMP-2 225/45/18 tires bought on sale for $78 each during a Discount Tire online sale, oil/filters, air filters, one Interstate battery, and one set of Hawk pads, a set of plugs/wires and coils), and have had not one single non-maintenance repair, under warranty or post-warranty.

    So, $22,550 purchase price
    + $175 x 8 = $1,400
    __________

    = $23,900

    $23,900 – $8,500 = $15,400

    $1,925 per year or $160 per month for a 30k car, AND I included my maintenance, tires, brake pads, battery, oil/filter, plugs-wires, etc, into this equation, so if you back these out, it would be closer to $14,000 over 8 years or $145 per month.

    What will $145 per month get you into whether on a lease or a loan? You won’t even get into an econobox with A/C for that.

    You will have to pay AT MINIMUM $350 (and more likely $400) per month to drive an equivalent vehicle that I do, even if you “borrow money cheaply,” and finance something.

    Am I going to sell my car? HELL NO. It’s been meticulously taken care of by me, runs like new, and I love it. I’ve test driven a dozen new cars in 2 1/2 years and didn’t find a single one of them as agreeable to me, on balance, as my current ride. Many of them were overpriced pieces of garbage, through and through.

    But it just demonstrates, IMO, how the prudent amongst us operate, and refuse to literally spend twice as much or more as the lemmings do, while they receive, at best, equivalent goods, and more often than not, inferior ones (for 2x or more their money).

    • 0 avatar
      Sam P

      V6 Mustang?

      • 0 avatar
        DeadWeight

        RX-8.

        I’m going to offer Jack the chance to track it one if these days so he can understand why I appreciate his “Watery Big Bang” article so much, and so he can relay to the non-believers that $175 in maintenance per year can yield an 8 year old car that looks, drives and feels like it’s brand new, with not a single squeak, rattle or speck of rust (a single can of Fluid Film once a year has done a miracle in this regard).

        Take care of one’s gear is a lesson I’ve learned to love, as it results in low running costs, reliability, satisfaction jn knowing the foundation of your ride is solid, & satisfaction in pride in ownership. Why so few people take reasonable care of their gear in the form of preventative maintenance is a total mystery to me.

  • avatar
    Dr. Kenneth Noisewater

    $0 down, 1.55% for 60 months on my 2013 Volt. 2 years earlier I had finally paid off my $40k worth of credit cards after 4.5 years in a debt mgmt plan. Dealers must be DESPERATE :p

  • avatar
    cartunez

    If its not 0% I am not interested.

  • avatar
    Pinzgauer

    Financed half of my Boss purchase, 1.5%/60 months on about 23k. I did the math on the interest, and instead put the money in my investment account and leveraged the loan. I’v already made more on that 23k to cover the interest paid plus some profit, so I think for now I did the right thing. Unless the markets crash of course, but hey that’s the risk. No risk, no gain.

  • avatar
    Steven Lang

    Hell, to me this price range offers all the fun one grease monkey can find in a barrel full of vehicular laughs.

    I had a heavily spec’d out and modified 96′ Miata with a crated Japanese engine sell for all of $4500 this past summer. It had about 100k and was maintained by a distributor who also roadster magazine.

    Then there are the endless supply of high end versions from dozens of manufacturers. Just for Ford alone, you have ZX5′s, SVT’s, Mustangs, ZX3′s, and the unending number of special edition trucks whose powertrains are as durable as all get out.

    You don’t need to blow the dough if your goal is to have fun for the long run. Then again, if a new car makes you happy… do it…

    • 0 avatar
      DeadWeight

      +1

      My comment is awaiting “moderation” above, probably because I wrote H-E-double toothpicks, but I agree 100%.

      And that’s in conjunction with my comment above, when it does clear, because I bought new, and am essentially driving a 31k vehicle that I purchased new for $145 a month as of now – no loans, leases, “uber low finance charges,” or games – cash money on a quality vehicle, that I ain’t gonna’ be bored with even 8 years down the line, yo.’

      • 0 avatar
        krhodes1

        But let’s say you could have gotten a 1% loan for the car. You take your $30K and invest it – not hard to make 3-4-5% these days. You end up making money, and if anything happens, you can cash out and pay off the loan at any time.

        Doesn’t make a bit of sense to me to not take the all but free money. What you DON’T want to do is use the free money to just spend more money, which is what the “payment” car shoppers do. Especially when I bought my Abarth, it took some doing to get the sales dude to STOP talking in terms of monthly payment. I don’t CARE what the payment is, I want to know the bottom line price on the car!

        • 0 avatar
          DeadWeight

          I have never and never will pay interest to borrow money on an inevitably depreciating asset, no matter how low the interest rate.

          If I can’t afford to pay cash for a depreciating asset, I’m not going to dig a deeper hole.

          This strategy has served me very well during my life – a life not of deprivation by any means, either (more of the minimalism in picking quality items over quantity items, and quality time over quantity time – see Jack Baruth’s masterpiece essay on the “Watery Big Bang” and true quality if you haven’t already).

          YMMV.

          • 0 avatar
            bikegoesbaa

            Even if the interest rate is lower than inflation or what you can earn a higher return by investing the money, and you have the cash on hand to buy the car outright?

            How does that make sense?

            I’ve turned it around all sorts of ways in my head, and they all say that in practical terms you’d be better off keeping your cash and milking the low-rate financing to the greatest extent possible.

        • 0 avatar
          Steven Lang

          The problem is you will still end up spending $30,000 on a particular good, while a comparable one can already be had for $4500.

          Sigh… if you want to call yourself an enthusiast, fine. If you want to call me a ham sandwich, no sweat. If you think the numbers work by spending six times more money on a depreciating asset, teach me something new then.

          In the end the depreciation, taxes and insurance you’re going to have on that $30,000 car is going to be far, far more than the $4,500 car. The arbitrage you get by putting the money in a no-risk asset will not outweigh that cost.

          Which gets me to the big point… the moment you stop feeling you have to justify a purchase is the moment when you can start enjoying it. $30,000. $3,000. $300,000. They’re all just a mathematical footnote after you have decided that a given car is right for you.

          As for me. Miatas and Mustangs are impractical. But I love em’. Even if they appeal to ever smaller audiences with each passing year. I drive what I love because I choose to be an enthusiast. Case closed.

          • 0 avatar
            DeadWeight

            I’m not disagreeing with you.

            I’m approaching your analysis from a different perspective.

            We’re both saying buy & hold a quality vehicle that you enjoy is the best recipe.

            The only difference is that you’re stating it’s better to buy a 8, 10 or 12 year old vehicle, already substantially depreciated, when I personally prefer buying a new vehicle that I know I love, meticulously maintaining it, and driving it for a long time, keeping it pristine.

            I know going in what my exposure to repairs are on a new vehicle, and more importantly, I know that a new vehicle is a known quantity that offers me the opportunity to have enjoyment and pride of ownership for a minimum of a decade, and in many cases, much longer, having no payment, and only maintenance expenses.

            There are certain cars I’d prefer to buy used, though, because their offspring are far worse in the areas that matter to me, and I may luck out and find an honest, competent prior owner, who relished in taking meticulous care of his vehicle.

            A great example of the latter would be why I’d prefer EITHER a well maintained E46 or E90 compared to a new F30.

          • 0 avatar
            krhodes1

            @Steven Lang

          • 0 avatar
            krhodes1

            @Steven Lang

            But a $4500 used example of a car is NOT comparable to a $30K new car. The new car has it’s entire life ahead of it, the used car has some fraction (probably large) used up. There is also the intangible appeal of “new” as in mine from day one, exactly what I wanted, no compromise. And those first few years are the largely trouble-free ones. I had the one stupid thing with my BMW, but even that was completely painless. I couldn’t drive the car, so I pushed the “Assist” button, talked to the nice people, they sent out a loaner on a flatbed and took my car in. Only issue in 2.5yrs. There are darned few $4500 cars that are only going to have one issue in 2.5 years. If nothing else, you are on the hook for routine maintenance – something you can have for free for 3-4 years with many new cars, even relatively cheap ones. In my state there is not much in it for insurance and taxes, my $5K Range Rover costs more to insure and register than my new Abarth does.

            To REALLY be reasonably comparable, you need to compare a new car to a low-mileage 1-2yo car, at which point I find the discount to be not enough to bother with (on anything worth owning), especially since you can’t play one dealer off against another on a particular used car. I could have ordered my BMW anywhere from Maine to California – I got a pretty good deal on the thing.

            Ultimately it comes down to whether you can afford it or not. when I was making $40K a year, I happily bought $5K used cars and repaired them myself. I can afford to buy cars new now – $40K is a smaller proportion of my disposable income than $4K was back then. I just don’t plan to trade them in every few years like clockwork. BMW is making it easy – they won’t sell me a 328d equipped the way I want it, so my wallet stays in my pants. The Abarth is a bit of a special case – it’s a toy, I bought it knowing I would only keep it a couple years, but it was cheap and with very few miles on it I will likely sell it for top dollar when the time comes. Question is – what next? Mustang? 2-series? Go nuts and get an Alfa 4C? I sure would love to do Euro delivery again, but the new Mustang is dead sexy! And so cheap!

          • 0 avatar
            ajla

            “I can afford to buy cars new now – $40K is a smaller proportion of my disposable income than $4K was back then.”

            Yes, if you have over $40K of annual leisure money then I think buying a $27K new car every few years works fine.

            “Ultimately it comes down to whether you can afford it or not.”

            That’s the thing though. Most people aren’t in your situation. They can’t afford it but justify a new vehicle purchase anyway.

          • 0 avatar
            Steven Lang

            krhodes…

            The mathematical issue (and yes, it’s just plain math), has to do with the use.

            Most folks don’t use their vehicles for the entire length of the vehicle’s life. On average most folks will keep their vehicles for between five to six years.

            In most parts of the country, a ten year old vehicle that has been well kept will have plenty of life left.

            As these upcoming years go by, you’re going to see an absolute flood of used vehicles just sitting around. This is due to a variety of reasons. Just a few of which I’ll cover right now.

            First, there is the evolution of computerized diagnostic systems and their impact on the efficacy of independent garages and DIY mechanics to handle mutliple varieties of vehicles. OBDII, Alldata, even certain Youtube videos help demystify the process of repair to varying degrees.

            In the past, you would have to either go to a specialist, a dealership, or an independent repair facility that either invested tens of thousands of dollars in equipment, or farmed out some of that work to other shops that had the right diagnostic equipment (and the mechanics who would do the repair).

            Now that side of the industry is becoming increasingly affordable and capable. I do have my doubts about some things. Especially the overuse of certain CVT systems that aren’t designed to last as long as other transmissions. But even the lower rung of used cars from 15 years ago, excepting a few low-end Korean imports and a few other defective designs that had minimal production) can last well into the 200k range.

            I sense a long post on this one, and thanks for writing your response. So here’s a brief conclusion. The manufacturing techniques, quality of materials, ease of repair, platform sharing and overall commonality of parts, and even the decline in driving by the average American, are pushing the average age of vehicles ever so closer to the 12 to 13 year range. The easy credit of today may push that average down temporarily, but the medium-term trend for the next 10 years is for the number of older used cars to increase by a hefty margin.

            So When you say a new Miata… I see an older Miata that cost less than a fifth as much and already offers all the useful life that most folks want.

            The same is true for the other side of the scale. The Camry, the ambiguous adrogyny of most sedans from the Y2k-era, the fun little sport coupes that now have a declining audience. SUV’s which are now becoming less popular at the auctions. There is a scale of fun that all these vehicles have, and I just don’t see the $27,000 vehicle offering that much more real-world fun than the $5000 version.

            Are there exceptions? Of course. But if we are looking at the economics of ownership for the enthusiast, who wants to have a ton of fun, most used cars will offer a far better bang for the buck. Plus think of how many track days you can pay for in place of that monthly payment… and the insurance… and the taxes… and the long-term depreciation…

  • avatar
    sportsuburbangt

    I financed a new (leftover) Expedition @ 1.9% for 6 years from my credit union. The dealer took 10k off the sticker and charged me 1k to deliver it to me in NY. The dealer was in Texas. The money was cheap and the leftover was only 2k more than a used one. I plan on getting the extended warranty from ford in the next year.
    The internet is a powerful tool in these transactions, the ford warranty i priced out is $1800 to cover me to 80k. That is cheap insurance.

    • 0 avatar
      krhodes1

      You are better off putting the $1800 in the bank. Extended warranties are a worse bet than Vegas, the house ALWAYS wins.

      • 0 avatar
        bumpy ii

        Except that the house is gambling too, and every so often they misread the situation.

        • 0 avatar
          VoGo

          A warranty is a form of insurance. You should only buy insurance under one of two circumstances:

          1. You know more than the insurer. For example, if you knew you were about to die,but the insurance company does not, then buying life insurance is a good buy (for your heirs)

          2. The loss you would incur exceeds your ability to cover it. So if you are afraid you might have a house fire and could not rebuild your home out of cash, home insurance is a good idea for you.

          For the majority of people, buying an extended warranty is a poor decision financially. But if it provides piece of mind, who am I to argue?

      • 0 avatar
        Hummer

        I actually knew someone who got the extended warranty for an escalade… Saved him 23,000 or so… Purchase price of car? 21,000.

        Every damn thing failed, but as soon as warranty went out, everything was fine….

  • avatar
    Kyree S. Williams

    A lot of commenters will have you believe that they are masochists. I am not in that camp. My belief is that, given you have a choice in the matter, it is okay to pay cash for a car, and it is even okay to pay very little cash for a car. But you shouldn’t buy a car that you hate and then drive it for a long time just so that you can pay cash for your next car or continue a perpetuating cycle of driving dreadful cars and having tons of cash. If you’re going to go the cheap-transportation route, it needs to be for something that you actually like, and it needs to eventually be replaced with something that you also like.

    • 0 avatar
      DeadWeight

      You hit on a key point -

      Pay cash for a quality (buy quality and cry once – although quality can be had at a discount at opportune times) vehicle that you are confident you’ll at least like deeply, if not love, for a long time.

      This may not be easy, but it is possible, and it pays you back in far more ways than one.

      A pattern of a quick turnover of vehicles, in rapid succession, with few exceptions, is one of the biggest financial bloodletting someone sustains.

    • 0 avatar
      bumpy ii

      I ended up being a variation on that: I paid (relatively little) cash for my first few vehicles which I neither hated nor loved, but held onto them for 5+ years as I gradually built up my financial means to replace them (for larger sums of cash) with newer vehicles that I did like more.

      • 0 avatar
        Kyree S. Williams

        That’s not a bad idea. What I can’t get behind is the idea of getting a vehicle you can’t stand when you could can afford to do better. For instance, if I were looking at compact cars from 2002 or so, I’d rather pay a bit more to get a Focus than to settle for a Cavalier, Sunfire or Neon.

  • avatar
    ajla

    Average TTAC Person: I got 0% on my manual transmission GTI. I make about $180K annually and I had $80K just laying around to buy a car, but I thought it was better to take advantage of the low interest rate. I also negotiated a good price and have enough mechanical knowledge to know what’s going on with my car.

    Typical New Car Buyer: I make $50K annually and just spent $40K on a new Explorer XLT AWD at $0 down 6.5% for 84 months. I needed a new car because my Envoy needed new tires and brakes but I couldn’t afford that up front. I also won’t be able to afford any tires, brakes, lights, or really any maintenance beyond oil changes on the Ford because my life is so maxed out in monthly payments (but I can afford the payments fine). I don’t even know how to open my hood so when the mechanic tells me it is $1000 to replace a brake master cylinder in a few years I’ll decide to buy another new vehicle.

  • avatar
    3Deuce27

    In 1993, I bought a new Miata at the end of the model year with a friend discount for just under $13,000 cash. My per mile cost of acquisition, now stands at about $00.08. Of course that doesn’t include the money lost because the funds were no longer working, nor does it count the consumables and only repair(radiator). Figuring all of that with a 2% passbook return on investing $13,000 cash, it still comes out to about 00.13 cents per absolutely fun mile.

    In 2007 I found a low mileage 93′ Miata with a hard top for a friend and paid $4,000 for it. He put 40,000 miles on it, and I just sold it for him for $4,500. In essence, he was paid to drive it, so he got the better financial deal, but I have had 170,000 miles of too much fun with mine and it is still going strong.

    A strong case for buying new or used, personal vehicles. Business vehicles should be bought new, even, though, some case can be made for a used business vehicle acquisition, just never worked for me, financially.

  • avatar
    seth1065

    7 years is crazy for a loan but it seems that it is the way things go, I took a 48 month loan on my TDI wagon nothing down and my payment sucks every month, but when I needed a car use prices were sky high, I drive about 40 k a year and I get a car allowance that covers my note and my gas so I am covered but when the car is paid off I gotta decide, drive it to the ground and pocket the car allowance each month or trade it / sell it for something else. I kept my old car rather than trade/ sell it so daughter could have a car to drive, I could have had a 7 year loan but I hate loans and I can afford a 48 month loan. My sales guys who work for me all have 6 or 7 year loans and make a lot less than I but they want to drive a nice car and it will cost all of them big bucks, I try telling them buy only what you car allowance will cover but they do not listen. 2 of them lease and are way over their mileage but had to have a cool car, so they will be upside down for ever.

    • 0 avatar
      3Deuce27

      Regarding; “it will cost all of them big bucks”

      You bet it will. About $8,000 or $95.00 a month over seven years($30,000 @ 7% for 84 months).

      But, would paying cash be a better proposition, you bet. Depends how much return you can get for your $30,000 and the actual finance rate. At today’s passbook savings rates, it is about $1,100 to $2,000. Higher return rates and the cost of cash could equal or exceed financing rates.

      Either way you go, it is going to cost you something for acquisition costs. Cash up front may be cheaper, unless you can get some serious return on your treasure.

      • 0 avatar
        highdesertcat

        Your comment is so interesting that I felt compelled to jump in.

        The decision to finance or pay cash generally is driven by a person’s financial position in their life. In today’s world you get almost no return on your ‘savings’.

        Most young people don’t have savings.

        Many old people have tons of savings plus assets and very few liabilities. Many would like to conserve their assets to pass on to their heirs.

        The idea is to optimize one’s assets and liabilities to where the last of one’s personal wealth and fortune culminates in the final check to the undertaker.

        And how an individual goes about achieving that is generally unique to their own financial situation and needs.

        This is just too deep a subject and doesn’t lend itself to a quick summary, so the path an individual chooses has to work for them.

        Both sides are actually right, if it works for them.

        • 0 avatar
          3Deuce27

          Reg; “The decision to finance or pay cash generally is driven by a person’s financial position”

          Yes, it, is. My point was to elaborate on the potential differences of the the financial realities of the two ways of paying for a vehicle. You could also ameliorate the finance costs with a considerable cash down payment.

          My feeling is, if you can’t afford to easily pay cash for a new car, you should be looking at used until such a time as when you can pay cash, then choose from a position of personal financial strength, not from a position of tenuous at the end of the plank financial insecurity.

          I’m with Steve on the value of good used cars for high value utilization and if that is a fun car, so much the better. I can afford to pay cash for just about any car South of a half mil, but will it give me more fun and greater utilization then a new one. Will a new Miata be more fun then an older used one? Will a new Maserati Granturismo be more fun the an older used one?

          I love cars, but, they are not as important as a strong personal financial position, and that should be every ones focus. That doesn’t mean you have to defer your fun or buy a crap car, just like Steve thoughtfully elaborated.

          • 0 avatar
            highdesertcat

            “My point was to elaborate on the potential differences of the the financial realities of the two ways of paying for a vehicle.”

            There is actually a third way to do it. My youngest son many years ago could afford neither new nor used because he was newly married as an E-3 in the US Army.

            So he opted to Lease a Honda Accord LX for his new wife to use as her daily driver and future mom-mobile.

            After the 3-year lease was up he chose to buy the Accord because it had been a great car for them. The residual wasn’t bad and by then he could get a loan from the credit union. They kept the Accord for at least 10 years, IIRC.

            As far as used cars go, MY personal experience with buying used has been dismal. This at a time when I was young and poor, a two-striper in the Air Force, and could least afford it.

            To me, buying used always equates to buying someone else’s problems.

  • avatar
    Lou_BC

    The lemmings are lining up at the fiscal cliff once again.

    Why do those that swim at the shallow end of the gene pool create the most offspring?

  • avatar
    jimmyy

    If you are over the age of 35, and you need to borrow money for an automobile purchase, then you need to address the root of the problem … something has gone very wrong with your career.

    • 0 avatar
      Sam P

      If someone is financing a car for a reasonable interest rate for a period than is less than the warranty, what’s the problem?

      I work in finance, pay cash for all my cars, I’m 32 and I think this is a ridiculous statement.

      • 0 avatar
        jimmyy

        Not a ridiculous statement. By the age of 35, you should have accumulated a net worth far larger than the value of a car such that you should be able to write a check for the purchase. And, your net worth should be such that you are not desperate to pick up nickels by attempting to conduct interest rate arbitrage on your loan rate. But, if you find yourself in such a position, then your career has not delivered sufficient income, and you urgently need to reposition your career before it is too late. If you are unable to pay for a car cash at 35 without hesitation, then you will never be able to handle college bills at 45.

  • avatar
    chaparral

    There is one buyer for whom cash purchases – or even being a buyer – makes no sense.

    The car-killer.

    In the past five years, I have blown three engines, worn another to the point that it was 10 MPH slower on the top end, destroyed all the bearings and shafts in a Corvette gearbox, cracked a subframe, stress-cracked unibody parts (!). My new car will be turned in with 39,000 miles, cosmetically fine and good on the interior. All the maintenance will be done on-schedule with full records. It’ll have been under warranty and any actual breakages will have been covered. It’ll look fine on a CarFAX and the excess-wear charges will be minimal.

    You won’t want it. It’ll drive like it has 176,000 miles.

  • avatar
    APaGttH

    Sigh.

    A story about Jalopnik (admittedly positive)

    A story about a drunken party girl (OK the chase video was awesome)

    A story about Latin American cars lacking safety equipment and the Chevy Spark is made the example.

    Now a story about bloating car loans and the pic is a Cadillac dealer. (isn’t Dodge the King of bloated car loans to anyone who can leave moisture on a mirror?)

    Oh, and the real tests of the Chevy SS are consistently showing 0 to 60 in 4.5 seconds in multiple reviews.

    I feel TTAC is slipping backwards into its old ways. :-/

    • 0 avatar
      3Deuce27

      Reg; “I feel TTAC is slipping backwards into its old ways.”

      YES, Lets hope it doesn’t slip too far.

      But, the success of CARSCOOP postings for the clueless fourteen year old still playing in his sandbox, can’t be denied.

      TTAC bottom line, survival. Part of the business model … its all about clicks, so you have to offer a range of postings.

      Your bottom line… discernment… you don’t have to click on the lame, sensational postings.

      Net effect of discernment… the enjoyment of the quality postings presented here.

      OK! Lunch is over, time too quit wasting time here and get back to being productive.

      The oxygen sensor bosses are welded on and sensors fitted, so I best help get the wiring and ECM hooked up in the RX7 so we can fire the LS376 for the customer on Monday.

      Damn! Retirement is too much fun.

    • 0 avatar
      jimmyy

      This is a very relevant article. In fact, the entire auto industry is being kept alive by our leftist government using several techniques, one being interest rates rigged from QE. QE is causing people with lower credit scores getting car loans, and getting these loans at very low rates. In a normal world, these people would not be qualified. We are selling cars at bloated prices to low credit people. Great. In effect, we have low incomers buying UAW products. How will this all end? Very very badly. For all of history, the printing of money has ended in disaster. This time will be no different. Enjoy it while it lasts.

      • 0 avatar
        3Deuce27

        ^— Another example of how effective the corporate main stream media and political operatives were in pulling the wool over the American public regarding the financial melt down.

        Now go and do some non-prejudicial, eyes wide open research on what really brought on the crisis.

        ‘Leftists’ … you mean those right of center Democrats? Hell, the’re not even Republican Light anymore, they are firmly over the line and kissing the ass of their Republican brethren. Eisenhower was more of a ‘so called’ liberal, then the current crop of Demo’s.

        The Democrats and Republicans with the support of their corporate masters, own the game, and they all go by a well practiced script. One plays good guy, the other plays bad guy, but they are both vested in the game, and both are almost equally vile, and that means until you do something about it, they own you too.

        The take away is, both parties own the game, and you don’t, but, you could, if only……


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • J & J Sutherland, Canada
  • Tycho de Feyter, China
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India