By on February 6, 2014

Suckers at the Stock Photo Dealership with a Credit Card

Though many a dealer knows lengthy long-term financing is a bad deal for all involved, Automotive News reports that attendees at the recent American Financial Services Association’s Vehicle Finance Conference in New Orleans acknowledged that such financing is necessary to do business.

Longer terms and low interest rates have kept the average monthly payment on those loans flat despite increases in loan terms used to finance a new or used vehicle purchase. Currently, the average length of a loan for a new car is at 65 months (used cars are at 61 months), but the fastest-growing category are loan terms from 72 to 84 months, which are likely to leave consumers upside-down come trade-in time; brand and dealership loyalties are also affected negatively by this category.

As for why dealers continue to offer superlong-term financing, varying factors in each consumer, like credit scores and trade-in issues, contribute to the need to offer options in order to make a purchase or lease affordable for the consumer.

Get the latest TTAC e-Newsletter!

83 Comments on “Dealers: Lengthy Long-Term Financing A Necessary Evil...”


  • avatar
    DC Bruce

    If you’re going to be “chained” to your car (because of the fact that your loan balance is greater than what the car can be sold for), then maybe leasing is a better idea than super-long loans.

    Or — here’s a radical thought — accommodate your desires to your pocketbook and leave the bling on the shelf.

    • 0 avatar
      OldandSlow

      DC Bruce – I couldn’t have said it better myself. What gives with folks in this country? Will they ever learn to within their means?

      With my yearly income, I have to be content by buying a 5 to 6 year old vehicle, then hold onto it for at least 5 years.

      • 0 avatar
        DC Bruce

        I’m kinda weird in that, if I buy a car that I like, I’ll keep it for a long, long time. I have a BMW that’s coming up on 13 years old, that I bought as a CPO when it was 2. It hasn’t been a repair queen, and I am able to do some of the work on it myself. Best $24,000 I ever spent. The car it replaced — a ’92 SHO — I owned for 11 years and had purchased new. I would have kept the SHO longer, but the indy mechanic I had who specialized in them moved on, and other Ford “cheap-outs” (not the engine) began to catch up with me, like the plastic lining of the fuel tank coming off in little bits and destroying one fuel pump.

        My theory is buy a used car while its still under the manufacturer’s bumper-to-bumper warranty. That’s your insurance against any problems concealed by the seller. And, obviously, buy a car that has a decent reliability repulation (i.e. not a VW or an Audi or a Mini Cooper or a BMW with DI).

    • 0 avatar

      Excellent observations, IMHO!

    • 0 avatar
      jkross22

      A LOT of people refuse to acknowledge economic realities of their circumstances. We’re a country that is financially illiterate. How many of us do you think balance our checkbooks every month?

    • 0 avatar
      dude500

      You’re making the assumption that people are buying $30k cars when they should be buying $20k cars, but is that what’s happening here? Or are people trying to buy a $14k Fiesta for work transportation, and long-term financing finally allows them to afford it? I’d be interested to find out.

      • 0 avatar
        Syke

        Just for the hell of it: I’m looking at a new car this June, 3-year note (I retire July ’17). Just for the sake of doing a ballpark figure, I hit the Chevy website and specced out a Cruize Eco 6-speed, ECO convenience package, smokers package, fog lamps. Price is $20,135.00 with rebate. Take off $5000.00 for trade. $469.00/month on a 3-year note, or $87.00/month on a 24-month lease.

        Right now I’m almost paid off my Solstice, doing double payments ($512.00/month) killing off the four year note in two. And I’m seriously wondering: Do I really want to own my next car? Seeing that in three years I’m looking at social security plus my investment income I’ve been living off the past eleven years to supplement my current job . . . . and I really don’t have a desire to pay off whatever I buy and then live with it for the remaining 15 or however many years I’ve got left, I’m starting to see the reason for leasing.

        At my age, it’s not that important whether or not I actually own that car. The Ranger and the Solstice are either paid for or will be in the next couple of months, so if I come off a lease and don’t feel like putting money out for something else, I’ve still got transportation.

        And that’s a hell of a lot of money ($512.00-$87.00=$425.00) a month that I can toss into savings against whatever living costs spring up.

      • 0 avatar
        DC Bruce

        Somehow, I don’t think we’re talking about people taking 7-year loans to buy a stripper Fiesta. The car companies like the longer loans, because, as we all know, dealers “sell” monthly payment. When you look at a car, they talk about the monthly payment required to service the debt on that car, and whether your budget can afford that payment. So, to the extent that a longer term loan allows the buyer to buy “more car” for the same monthly payment, everybody comes out a winner! . . . or at least thinks he does.

    • 0 avatar
      andyinatl

      That is pretty radical stuff DC Bruce :-) A picture from local news about a year ago stands out in my mind; a young woman complaining to the TV reporter (the topic was how the government cuts were affecting local population) how it’s now tough for her to feed and clothe her children (can’t remember exactly but it was 2 or 3 kids). All the while behind her you could see the kids playing video games on a huge wall mounted HDTV. What happened to priorities in this country?

      I understand that perhaps the extra stuff was purchased at the better time, when pay was better, etc. But it’s still not an excuse that when the pay was better, that woman didn’t think to save up more money for the times ahead that may not be so good. Too many people are not using the opportunity to save when you have good paying job, etc, for the times that may not be too far out around the corner that may not be very good.

      I’m far from perfect myself, having traded cars few times too many instead of holding on to them for long time, but i learned my lesson. In this economy, unfortunately everyone is left fending for themselves and you can’t depend on any hand outs (unless you’re Wall Street or union of course)

      • 0 avatar
        DC Bruce

        Kids these days! :-) But, let’s be fair. Its really about what someone’s peer group does. My dad — who was a junior naval officer in the 1950s — used to comment back then that the Chevrolets, Fords and Plymouths in the base parking lot belonged to the officers, while the Buicks and Oldsmobiles belonged to the Chiefs (Chief Petty Officer, a high-ranking enlisted man, comparable to a Sergeant in the Army). I don’t know what the pay differential was between, say, a Lieutenant and a senior CPO; but I expect the Lieutenant was paid a little more.

      • 0 avatar
        sgeffe

        Fortunately, all is not lost! New colleague at work is a self-admitted “former jock” (with a business degree who has an uncanny ability to just soak stuff in, so much so that he picked up systems analysis at a former position and hasn’t stopped) with a maturity and mentality approaching forty years-old, though he’s likely only twenty-eight or so, who just “gets it!” He worships the ground his wife and adorable fifteen month-old daughter walk on, and he considers it a badge of honor to see a dollar saved (as does his spouse)! Just yesterday, he was able to save over a hundred dollars a month on his overall auto/homeowner’s insurance package, after having done research that puts ** MY ** OCD in that area to shame! (His “former” insurance agent is a family friend who, when he couldn’t make the numbers match, was honest enough to say “you’d be silly not to take this deal; no hard feelings at all, and we’ll likely deal again in the future.”)

        They live comfortably within their means, owning a CPO-purchased Chevy Equinox, and after getting the job in my department (only a few miles’ commute, as opposed to an hour’s commute one-way previously), he was able to make his numbers work well enough to purchase his “dream truck,” a nicely broken-in 2005 Avalanche with 176k on the clock (“like a nicely worn pair of shoes”), in cherry condition even considering the mileage. (He got not one, but TWO mechanic’s opinions; the seller just wanted something different, and wasn’t unloading a lemon.)

        He also does lots of the wrenching on his cars “for relaxation!” (Another stereotype blown!)

        With enough other folks like him following my footsteps, perhaps “Generation Y” is going to do better than first thought!

    • 0 avatar
      raph

      Sounds like an area the needs to be rigidly policed. Like no car notes for more than 48 months.

      I wish I could also get my no ARMs and mandatory 30% down payment to own a house law passed.

  • avatar
    28-Cars-Later

    Oh, they’re back.

    So did he ask “How much?” at the brothel and is prepared to put her on his AMEX?

    • 0 avatar
      Hummer

      +1

      She’s thinking “har har, he doesn’t know my secret, soon.. ..soon”

      • 0 avatar
        DeadWeight

        He’s trying to put his maximum line of credit ($8,500) on his Facebook/Twitter VISA Card (which has an APR on balances of 19.99% but only a $5 monthly minimum payment) to earn Groupon points, while financing the rest of the $45,980.07 purchase over 188 months @ 4.77% interest.

        She’s smiling because her significant other didn’t let the salesman close him until the dealership was forced to agree to an extra year of Sirius and also threw in upgraded floor mats.

        The older I get, and I’m not that old, the more I feel that rational consumers & rational consumption are things growing exceedingly rare, and that the marketers of all things prestigious, shiny & new – who are really psychologists – are unfortunately winning the battle between idiocy & common sense quite lopsidedly,

        There was a time in this nation when people really did save and put down 20% of the PURCHASE PRICE OF THEIR HOUSE PURCHASES (now it’s 3.5% since 86% of all mortgages are financed via the FHA, and in many cases “incentives” allow the home buyer to avoid even having to pay the 3.5%) and when automobile buyers either paid cash or a big % of the total purchase price in cash for their rides (or, if they were “less conservative,” they financed the purchase over 48 or mayyyybeeee 60 months).

        I realize now, after my rant of grunting & constipation, that I am just getting older, cranky and “don’t understand how the real, new world works, grandpa!,” and that my habit of paying cash for things (or as much cash as possible) and viewing each and every penny of interest that is captured by some “financial entity” off any transaction is almost seedy or akin to unclean-ness, and a very troubling facet of the new world I’ve grown leery of can be chalked up to the fact that I and my views are archaic relics from a far different time…

        …after all, I was born in 1976.

        p.s. – I have been looking at possibly acquiring a new vehicle recently – a household vehicle, of you will
        – and based on the fact that even in near base trim levels, most vehicles I/we are considering have more features than I ever think I’ll need, and many features (again, in base or near base trim levels) that I don’t want and/or will never or rarely use, I know I’m not long for this brave, new world.

        • 0 avatar
          andyinatl

          DeadWeight, i’m a year younger than you, but i share your sentiment to the new financial environment, that has become “toxic” to the gullible masses. Thankfully, i learned from my mistakes made in my 20s and don’t want to give a penny to the banks if i don’t have to. We’re expecting our 3rd kid now, and were briefly looking at new/used Ford Flex to accomodate the 5 person family for long trips, etc. After running all the numbers, i figured we’ll squeeze our brood into our existing (and paid for) Volvo V70 for local trips and just rent when we need to take long trips. I’d rather be financially free and a little uncomfortable on trips, then the other way around.

        • 0 avatar
          Reino

          I am with you on the unnecessary car loans, but 3.5% down on an FHA house loan is a Godsend. These days, even the most modest single-family home costs at least $150k. No young person has $30k in cash saved up for that. It would take ten to twenty years to do that. That means you’ve thrown away all those years on rent instead of a mortgage payment.

          • 0 avatar
            JuniperBug

            Ten to twenty years to save up $30k?! My goal is to do it in three years (I’m halfway there), and I live alone, am completely financially independent, and serve food and drinks for a living while studying part-time.

            I also take a nice vacation once every two years (last year was Thailand), have a nice, but old, convertible in the garage (paid off, of course), and a $1200/month rent.

            If you can’t sock aside a few hundred a month when you’re single and childless, you’re doing something wrong.

          • 0 avatar
            DeadWeight

            @Reino “but 3.5% down on an FHA house loan is a Godsend. These days, even the most modest single-family home costs at least $150k. No young person has $30k in cash saved up for that.”

            So, what you’re essentially statistics that because of artificially low, subsidized mortgage rates, AND BUT FOR THESE 3.5% DOWN FHA MORTGAGES, housing prices would be lower, right?

            I can assure you that this is precisely the effect that artificial, subsidized FHA mortgage rates have if judged by solid economic modeling.

          • 0 avatar
            DeadWeight

            @Reino “but 3.5% down on an FHA house loan is a Godsend. These days, even the most modest single-family home costs at least $150k. No young person has $30k in cash saved up for that.”

            So, what you’re essentially stating that that because of artificially low, subsidized mortgage rates, AND BUT FOR THESE 3.5% DOWN FHA MORTGAGES, housing prices would be lower, right?

            I can assure you that this is precisely the effect that artificial, subsidized FHA mortgage rates have if judged by solid economic modeling.

          • 0 avatar
            guevera

            Median family income in the U.S. is right around $50,000 a year. Tough to save $10 grand/annually on that kinda take home. If you’re making significantly more than that, wonderful, congratulations, but don’t be a jerk about it. Don’t forget that after inflation, average wages for the American worker have declined pretty much every year since the mid 70s.

        • 0 avatar
          sgeffe

          See my post above regarding a new colleague at work. (BTW, was able to get a three-year note on that truck, $180/month.)

      • 0 avatar
        28-Cars-Later

        RUSSIAN WOMAN: After Chernobyl, my penis is falling off.
        MOE: And “penis” is Russian for?

    • 0 avatar
      CoreyDL

      He has not signed the back of that card, going to need to see some ID.

  • avatar
    ash78

    If you consider that 20 years ago, a car might be lucky to hit 100k miles and was financed for 4-5 years, this isn’t terrible news.

    Sure, you’re upside-down for a few years on the front end (buy gap insurance!), but in the overall scheme of how much longer lived cars are today, long finance terms are not the end of the world.

    Not my cup of tea, financially, but the mantra of matching the financing terms to the life of the asset can still hold true here.

    But realistically, how many of these long-term buyers really keep these cars beyond the financing term? I bet there’s a strong correlation between people who opt for long finance terms and those who trade frequently. Just a gut feel…

    • 0 avatar
      ajla

      I’m pretty sure that a lot of cars from 1994 could hit 100K.

      • 0 avatar
        JuniperBug

        My ’92 Jetta made it to 160k miles when I got rid of it, at which point the body was too rusty to make any sort of case for maintaining it. Engine was showing some oil pressure issues likely due to worn bottom end bearings, but the top end showed great compression, and the transmission still shifted well. The original clutch didn’t engage as smoothly as I liked, but didn’t yet slip. I hit an indicated 120 MPH the day I sold it, and that was a car I owned from 18-23 – I was not easy on it.

      • 0 avatar
        DC Bruce

        Definitely: I’ve got proof.

      • 0 avatar
        DeadWeight

        To ajla’s point, the most reliable vehicle that I’ve ever owned was a 1994 Honda Civic EX w/5 speed manual gearbox. I have no doubt those cars could routinely make it to 300k miles with absolutely minimal issues, with at least a basic standard of maintenance bestowed upon them.

        Not only were they better handling cars than modern Acuras (they literally felt like front wheel drive late 80s era BMW 3 series – the steering feel was as good as it gets), but they were insanely responsive even with a mere 140 horsepower, too.

        • 0 avatar
          sgeffe

          And it looked like a Benz E-Class in the rear.

          Mine was a Torino Red slushbox! Not quite the roller skate the previous generation was, but had a bit more refinement!

          (Unfortunately, as I’ve seen in the staged Civic-vs.-Isuzu Raider of the day, that car was a deathtrap!)

      • 0 avatar
        raph

        Easily, cars from 30 years ago could do the feat as well. The 5.0 fox body mustang with over 100k on the clock getting a low boost supercharger (4 or 5 psi) was not an anomaly.

  • avatar
    BMWnut

    I am still concerned that there quite a few cars on the market that will simply not last 100 months without the need for big, expensive repairs. At present these cars seem to be optimised to last about 120 000 miles. Few people travel this much over 5 years, so it works out well. In the time it takes to pay the car off, little goes wrong.

    In a lot of cases so-called free maintenance is included in the price. This is also geared to make a profit rather than serve the consumer’s best interests. It makes the problem worse when the mile stack up. A well known example is oil in automatic gearboxes that never needs replacing supposedly being good for the life of the car. The 120 000 mile lifespan, that is.

    There are many other such worms in the woodwork, no doubt. If vehicles has to last 100 months, the auto industry will have to step up its game. As for second owners, who cares about them?

    That brings up another point. A major profit center for dealers are their CPO programs. Lots of owners never see out their full finance terms, opting for new wheels at about the halfway mark. This provides lots of stock for the CPO floor. But with super long terms, loans will be underwater at the 24-36 month mark. How can such a scheme work/survive when stock is 50 months old on average? A CPO car is supposed to be as good as new, you know.

    Once again, a short term solution will bring long term pain. There will surely be unintended consequences to catch out the unwary.

  • avatar

    Theories also on whether this is a strategy to produce vehicles that are clearly not inline with what an average middle-income salary can afford? It’s not that far fetched, really. Manufacturers want to see the average vehicle transaction price go up (just look at what CUVs have accomplished in this manner, not to hate on them particularly), and the best way to do that is to allow ridiculous loans like this.

    The numbers look better for them (sales up, average transaction price up), and the consequences are far down the line and neither attributed to the automaker nor their problem. Plus, instead of needing to focus on the low-end, low margin vehicles (see the Cactus-type vehicles we aren’t getting) they can push higher margin options to people that couldn’t otherwise afford them. It’s a brilliant manipulation of the average person’s desire have as much as they can for their means.

    Just throwing things out there, please don’t classify me as a conspiracy theorist.

    • 0 avatar
      Felix Hoenikker

      I don’t think it’s a theory. More like a done deal. The banks and finance companies benefit the most. I think the people who do this are not the sharpest tools in the finace tool kit.
      I am protected from this by my inate repulsion to paying interest for non income generating stuff. In three months, I will have paid off my house. There’s about $80 left of interest, but that doesn’t bother me. When the mortgage is finished this spring, I’m going to make the same payment to a bank account to save for the next vehicle. It will be like three car payments a month.
      That being said, I would not have a problem with a 60 month 0% interest car loan if the purchase price is below sticker.

  • avatar

    “which are likely to leave consumers upside-down come trade-in time”
    As stated, if you have a planned trade cycle that is quicker than your pay off, why the hell wouldn’t you just lease it? I realize there are some instances (few and far between) that don’t work, but most consumers of new cars should be leasing.

    Also, OBDII makes new cars fairly easy to fix. Many cars are in junk yards because of bad computers not bad motors. It seems vehicle value is based more on perception than utility, making people who actually are hard up in a great position. A set of wrenches and a sub $1000 “old” car make cheap and reliable transportation!

  • avatar
    CoreyDL

    She’s cheered up since her gay husband put on a jacket over his Hane’s t-shirt. Now he’s just gotta hand over his unsigned credit card to the salesman, who’s prepared to swipe it through the computer, which is off.

    • 0 avatar
      DeadWeight

      Oh, caption time! I love caption time!

      Salesman: “What’dya think of that little blue pill I had you take before the test drive about an hour ago?

      Male Customer: “I think it moved…I definitely felt something. What was that?”

      Gratuitous Woman Hanger-On: “I’ll be the judge OF WHERE THINGS STAND, FRIEND-O.”

    • 0 avatar
      redliner

      Why do ALL these stock photos make it look like the salesman and the boyfriend are having a “moment”? The girlfriend always seems to be slightly off center and looking in on the action.

  • avatar
    APaGttH

    Complex issue.

    Twenty years ago you could finance a car for 60 months no issue – and that car might get you to 100K relatively trouble free – issues after that. The cars that could and go beyond the 100K mark were more outliers.

    Today 200K is the new 100K. Safety equipment and luxury features have driven up costs, along with increased complexity to improve MPG, reduce emissions, and – lets add – improve reliability and build quality.

    Despite the ATP for all new car purchases continues to climb, US wage growth has been flatlined for 20 years, some would argue 30 years.

    We don’t live within our means as a nation – huge problem.

    But we’re a consumer driven economy. If the average consumer can’t buy the shiny new Ford Fusion, the wheels of the economy eventually falls off.

    I’ve pondered the overall unsustainability long term of the current model. We can only consume so much before the wheels come off the economy and no amount of “too big to fail,” quantative easing, cheap Chinese loans, or other government stimulation will save the system as it exists today.

    You’re upside down? It’s OK, we’ll finance you up to 125%! Totaled in the first year? It’s OK, you can buy payoff coverage from your insurance company! The ATP is closer to what you make in a year? Its OK, it will last and last and last, you’ll save $3 every tank of gas due to better fuel economy, and you can drive it into a brick wall at 100 MPH and walk away. It’s safe too!

    It’s so easy to pound your chest and declare, “ya, well I live within my means, I only buy used cars cash, and I have big stable investments for my retirement.”

    HINT: If everyone lived like you – those big stable investments in your stock portfolio would be all tanked when the earnings reports for those companies didn’t show the consumption fueled propped up growth. You’d be no better off than the spendthrift you look down upon. You actually benefit from the folly of this system. It all works, until everyone lives like you.

    It’s just a sign of the times – coming up next – the 40 year mortgage makes the big comeback.

    • 0 avatar
      Morea

      “HINT: If everyone lived like you – those big stable investments in your stock portfolio would be all tanked when the earnings reports for those companies didn’t show the consumption fueled propped up growth. You’d be no better off than the spendthrift you look down upon. You actually benefit from the folly of this system. It all works, until everyone lives like you.”

      It all works alright, until too many spendthrifts go bankrupt then those investments will tank anyway AND the government will have to bail out the too-big-to-fail. No place to hide for the thrifty.

    • 0 avatar
      ash78

      Love this post. Automakers really have to struggle with the idea that if cars are simply kept longer and longer, the whole system breaks down.

      But if prices and finance periods are increasing, then the only logical option is to keep cars longer.

      The industry is addicted to a certain transaction velocity or turnover and I have no idea how that cycle will be broken in a world of stangating wages.

      • 0 avatar
        Pch101

        “But if prices and finance periods are increasing, then the only logical option is to keep cars longer.”

        Lenders and dealers will do what they’ve been doing for awhile — find creative ways to roll old debt into new debt.

    • 0 avatar
      JuniperBug

      If people didn’t spend the way they do in North America, companies would adjust their business models. I’m not saying that that transition wouldn’t have its fallout, but there are still countries in the world, whose economies are in better shape than the US’s, whose citizens don’t indebt themselves the way we do over here.

      The Swiss don’t drive <2.0L cars because they're in worse financial shape than we are, it's because the culture values financial stability more than having a gaudy bauble to drive to work in.

      All that interest we pay to the banks, the insurance against defaulting on our mortgage that we put 5% down on, where does that money go? Wouldn't it be better for the economy in the long run if it stayed with the people, and not going to banks and other 1%ers?

      • 0 avatar
        APaGttH

        Respectfully disagree on the adjustment of models having only “some impact.”

        We are already seeing the cracks forming due to the flatlined wage growth in this country that only keeps up with the CPI inflation rate. Throw in non-CPI like food and energy and the power of the consumer dollar is in decline.

        Yes, demographics and habits are changing – and there is so degree of this.

        Casual dining chains are dying because the average American can’t afford to casually dine anymore.

        Big box retailers that cater to the lower income buyers like Wal-Mart, Target, Sears, and K-Mart are all hurting to varying degrees. K-Mart and Sears more due to stagnant business approaches – but Wal-Mart has had three crap quarters in a row and has issued grim outlook numbers in North America.

        Watch the Honey Boo Boo episode (admittedly a human train wreck of a show) where they go grocery shopping – at an auction. They’re buying near date expired items (not store lot cases of stuff, individual items) at an AUCTION to save money. This is how the growing ranks on the fringes live.

        Wal-Mart’s health is intimately tied to the health of the nation now as the largest retailer and the largest employer (like it or not). Oh the internet is killing Wal-Mart. That could be a true argument if Amazon hadn’t also missed their numbers.

        We’re already seeing the impact – the real impact is companies are no longer seeing the American consumer as the one they need to cater to, and the rest of the world needs to suck it up. Increasingly, the Chinese consumer is king, and we’re being told to suck it up.

        If you’re in the bottom 50% in the US – be afraid – be VERY afraid. And the other thing is a lot of people are in denial on where they actually are on the ladder, and how fragile their spot is.

        If you’re in the 51% to 89% rungs of the ladder, don’t be afraid, but be ready to face that in 20 years time, your life may not be much better than the bottom 50% today.

        If you’re in the 90% and above – happy times are hear again!!!

    • 0 avatar
      28-Cars-Later

      Excellent post, APaGttH.

    • 0 avatar
      George B

      Herbert Stein’s Law: “If something cannot go on forever, it will stop.”

      Eventually there will be a day of reckoning where we sort out what is real. Friends and family are real. Land that can grow food is real. A home that provides shelter from weather is real. Tools that help one do useful work are real. Money is only as real as the stuff it will buy and it’s easy to see too much money diluting its value. The problem with cars is there is a mixture of real transportation capability and “keeping up with the Joneses” social signalling. There is great potential utility as long as you have a way to get fuel, but a Toyota Camry makes a better gypsy cab than an Aston Martin.

  • avatar
    OneAlpha

    Very convenient, isn’t it?

    Dealers saying that the long-term debt they live on is a necessary evil, and not a foolish decision based on being conditioned to believe that one MUST have a new car at regular intervals?

    So the logical end of the road is the return of indentured servitude?

    Fuck that noise, man.

    My Volvo’s got a hair over 200,000 miles, which puts it at somewhere between one-half to one-third of the way through its useful life.

    I bought it with cash and have replaced the suspension, driveshafts and all the tuneup parts – all of which seem to have 100,000 mile service intervals. Very convenient.

    Theoretically, since I do all my own maintenance, I should never HAVE to buy another car. I might be able to get literally 40 more years of service out of that thing.

    It also taught me perhaps the most valuable lesson any car could – that off-lease European stuff isn’t the fire-breathing dragon it’s made out to be.

    You can beat it into submission with the right attitude and skill set.

    • 0 avatar
      28-Cars-Later

      Which model Volvo?

      “So the logical end of the road is the return of indentured servitude”

      Precisely. Student loans are a fine example. Borrowing say 10-15K -total- to attend school at market rates is reasonable and with even lower paying careers as this is manageable debt. But when you start spending 30K on Art Institute associate’s degrees for minimum wage jobs and $80K for soft English or Social Science degrees with few real job prospects, it in reality becomes a form of indentured servitude. Multiply this unmanageable debt by the thousands and economically speaking you have a lost generation, which is exactly what has happened.

  • avatar
    thunderjet

    Does anyone know the percentage of buyers who can go into a dealer and get the advertised 0% financing for 60 months? What percentage of buyers actually qualify for the lowest rates from the dealer? Three years ago I bought my first brand new car. I was able to walk in having never purchased a car from a dealer before and get 0% interest for 60 months before I even offered to put money down. Granted I got 2 credit cards in my early 20s to establish credit but I payed them off on time each month. Really it’s not hard to get good credit terms: don’t buy stuff you can’t afford and if you use credit pay the bill on time. Pay it buy the due date, not within the 15 day after window or late. Pay it on time. If you do that lending institutions will have no problem offering you good terms on loans, when/if you ever need it.

    • 0 avatar
      sproc

      Good question. As follow-on, I would wager that for a fair number of those better-than-prime buyers, no matter how good the business case is for that “free money,” they (like me) just can’t stand the thought of having a lien holder on the title. I’m curious to what extent that mindset impacts the number of 0% loans actually made.

      • 0 avatar
        jmo

        “just can’t stand the thought of having a lien holder on the title.”

        I just don’t under stand that. If you have the extra $30k in cash and you take the 0% you can pay it off anytime you want. Your net finacial position is the same. 30k in the bank at 0.01% and a 0% loan for $30k = $0

        • 0 avatar
          sproc

          I never said it was wholly rational. Besides not spending beyond my means, I simply prefer to own my vehicles outright.

          • 0 avatar
            DeadWeight

            My experience and that of of my brothers (who buys work pickups for his business) is that one can take the 0% interest rate if it’s being offered and the buyer qualifies for it, but this is then in lieu of being able to get a much bigger % of MSRP lopped off.

            IOW, you can get the 0% financing if you qualify, or beat the dealer up on the price, but not so much both.

    • 0 avatar
      thunderjet

      I took the 0% for 60 as I had money for about half the cost of the car. I ended up keeping the money and financing most of it. The only money I put down was my trade. I got the car for invoice price. At 0% I was charged $17.64 per $1000 financed. The money isn’t “free” but in my case I ended up getting charged an extra $280 or so for the loan so there is some interest. The lender made a whole $280 off me. I made more investing the money I kept over the last three years. In my case it was a win-win.

      I think however most people don’t think in these terms. You would think the people able to get 0% would just be able to buy the car outright. I still want to know what a “qualified buyer” is in relation to getting 0% or 0.9% financing. I have an over 700 credit score so it has to be somewhere over that mark, I would think.

      • 0 avatar
        Tim_Turbo

        For my brand to qualify for 0% you have to be above a 700.

        “You would think the people able to get 0% would just be able to buy the car outright”

        No-not really. You can have a very small annual income but still have a high credit score.

        • 0 avatar
          APaGttH

          Lets take is a step further. Your income has nothing to do with your credit score. You could have no income and have a very high FICO score.

        • 0 avatar
          kvndoom

          A high credit score just means that you’ve shown responsibility in paying debts. I can qualify for the lowest interest rates all day long, but I sure as hell don’t have $30k in my back pocket.

          • 0 avatar
            guevera

            A high credit score just means that you’ve been lucky enough to never get behind paying debts.

            Fixed that for you, you’re welcome

          • 0 avatar
            AlternateReality

            We make our own “luck,” and some of us are “luckier” than others. Those who aren’t shouldn’t necessarily be denied loans outright, but I don’t blame lenders at all for raking them over the coals a bit.

      • 0 avatar
        dal20402

        “You would think the people able to get 0% would just be able to buy the car outright.”

        Why would you do that when you could get the float?

        I have two cars, both with 0% loans. The second one was a complete no-brainer — I didn’t have to give anything up to get the 0%. The first one required me to do math, because I gave up a $3000 dealer incentive to get the 0%… but the 0% (for 72 months) was still a better deal.

        • 0 avatar
          krhodes1

          Same here – I’m not paying cash for something if the interest costs me less than that cash can make me. I put down enough to not have to worry about being upsidedown, and invest the rest. This seems like an incredibly obvious thing to me, yet people get all excited about “paying cash” for a car.

          I also refuse to pay a different price to get a low interest rate. I negotiate the price first, then let them see what they can do on the financing. I am already approved at the CU, or I could pay cash. The makes I am interested in don’t generally play those games though. They need the sale more than I need another car.

          • 0 avatar
            DenverMike

            @krhodes1 – What you’re saying is you’d be out a bigger penalty for paying cash. That’s fine, but that’s not even the case for most buyers that happen to have the cash on hand with zero strings attached, like annuities and whatnot. It’s not like you have the cash just sitting around. You don’t.

            For me, it’s always been a personal rule to always own my vehicles outright. And I don’t have to choose between investing capital buying a new truck. And I’ve never paid a dime on full coverage insurance. That’s another scam.

      • 0 avatar
        thunderjet

        I should have worded that better. Many people assume that a 0% qualified buyer would just buy the car outright. Most don’t. I didn’t because the 0% loan wasn’t costing me any money.

        I’m still curious what percentage of car shoppers actually qualify for 0%? I’m guessing it’s not a huge number but perhaps at least a quarter (25%) or so?

        • 0 avatar
          dal20402

          Well, the national average FICO score is 689, but that doesn’t tell us what part of the population would be applying for new car loans. I really don’t know.

          I do know that my fairly high score always provokes a reaction like “Oh, this one’s going to be easy,” so there must be plenty of buyers for whom it’s not so easy.

  • avatar
    Synchromesh

    This is why I strongly prefer to save up and pay cash. That way you can tell the dealer and the bank to go long and far and there is not a darn thing they can do about it.

  • avatar
    AJ

    There is a repo lot near my house. It just amazes me to see it when I drive by as it’s always swamped with cars, and even some RVs, boats and an occasional horse trailer. Could that in some way be a result of long-term financing? Get tired of it and just let it go?

  • avatar
    joeb-z

    My experience two weeks ago is that I could buy a Maxda CX-5 at about $300 below “dealer cost” (including all bs conveyance fees and such) and then get the finance deal at .9% of 60 months on the whole shebang ($100 down). I typically own a car for ten years and could pay cash. Having bought at the right price, why not take a finance deal that allows a profit with the invested money. Always negotiate the price first, then the financing. It’s simple.

  • avatar
    Steven Lang

    There are so many left hand turns in this thread, I wouldn’t know where to start.

    First off, a $50,000 income for one young person would be fantastic in most parts of the United States. The problem is most young people earn maybe $20,000, if that, a year. The ones who earn a lot more and live in major metropolitan areas either live at home, with other family, or have roommates.

    That was the norm back in the mid-90′s (adjusted for inflation), and is still the norm today. Nearly everyone struggles to varying degrees when they’re in their 20′s. The only difference, besides the number of open jobs, is that yesterday’s receptionist and Walmart associate, has become today’s barista and Walmart associate.

    The second issue highlighted by a lot of folks here, is that easy credit and deep sub-prime lending have unleashed the unintended effect of making used cars more expensive. This is true for houses as well. However housing in particular is heavily subsidized by the US government, while cars are only given limited subsidies.

    Finally, there are gaping holes of opportunity to buy a cheap car in the used car market. The question is whether you want to put your money into a new car (at 0% interest, 5 to 10 year notes, etc.) or do you want to save up, buy used for cash, or acquire the older family/relative’s car.

    The fact that SOME young people are stupid with their money is no different from the fact that SOME old people are still stupid with their money. I deal with financially clueless people every day… but I’m also the guy with Ooma for the home phone, a Straight Talk cell phone, a Tracfone for the wife, Cable DSL, and Netflix. So I am supposedly the wise soul who ends up spending nearly $1000 a year on all these wonderful services.

    Maybe I’m the idiot? Maybe I should just use Obihai, and a Tracfone for emergencies?

    Who knows? Who cares?

    We all have our comforts folks.

  • avatar
    CarPerson

    You have to factor in not only how much the seller is discounting the price, but how much they are supporting the back end.

    2011 BMW 335i (Inline 6 N55 engine, not the junk N54 from 2007-2010), absolutely pristine but the dealer put it through the full CPO refurb that included new run-flats, new fluids, battery, brake pads, discs, full-up the tool tray fill, $1k detailing, and more.

    Told them I would not even come to look at it unless $2500 came off the “Express price”. They did and I did. Previous owner bought it, took it home, and wrapped it in bubble-wrap??? Every 6 months took it in for a free service and wiper blade refills as shown on the CarFax??? Damn the car is better than showroom fresh…

    BMW Finance: “How about 0.9% financing and we’ll skip even that, making it 0.0%, and we’ll pay you $35 to permit us to allow you to use our money for whatever term you want.” Me-”Well, if that floats your boat…I’ll take 36 months with auto bank payments please…”

    I just sat back and let these cards fall as they did. I had the car shipped in an enclosed trailer from United in Atlanta to Seattle for $1800.

    Six years of no maintenance costs, no finance costs, and a full-boat bumper-to-bumper warranty.

    You need to look at the full package before arriving at a “Yes”.

    CarPerson


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