By on June 2, 2014

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The easy-credit train keeps on rolling in the auto world, with credit rating agency Experian reporting new records in key auto finance metrics.

Loan terms for new vehicles stretched to 66 months in Q1 2014, up from 65 months a year earlier. Loan terms for used cars grew up 61 months on average, up from 60 months one year prior. The average monthly payment for a new car was up to $474 per month, a 3.3 percent increase year over year, while used car payments ticked up 1.1 percent. The actual amount financed was up to $27,612 for a new car, up 3.6 percent, while for used cars, the amount was $17,927, a 2.3 percent increased.

Experian’s Melinda Zabritski was candid about the cause of the record debt that Americans are now taking on, stating

“As the cost of purchasing a new vehicle continues to rise, consumers clearly are stretching the loan term to help lower monthly payments, keeping them at a manageable level,”

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120 Comments on “Loan Terms, Monthly Payments Hit Record Highs In 2014...”


  • avatar
    28-Cars-Later

    I’m sure this will end well.

    Btw $460/mo for a Malibu. Insane.

    • 0 avatar
      NoGoYo

      The local Chevy dealer has a V6 Silverado half-ton optioned up to $63k.

      Someone apparently thought an $18,000 Rock Ridge suspension package made sense for a V6 truck and so there it sits, probably to be sold never.

      • 0 avatar
        28-Cars-Later

        Could have been a factory order which didn’t get sold. Something bizarre may have happened like the person put a deposit down, ordered it, and then died. Could someone chime in, I’m not sure what would happen with a dealer’s floorplan in this event could it just be sent back or is the dealer still on the hook to sell it?

        • 0 avatar
          Grunt

          he means a Rocky Ridge conversion which will be much more than just a lift kit. They are asking for quite a bit of markup as the highest dealer cost pkg I know of from them is about 12K. Once a dealer buys it and it is in his inventory there is no such thing as “sending it back”. Unless the conversion company helps them move it to another dealer or they dealer trade it they own it until they sell it.

          • 0 avatar
            NoGoYo

            And with that price, it’s not going anywhere any time soon.

            The Rock Ridge front bumper with winch is pretty damn nice though, I’d love to get one if I had a Silverado.

            The whole package turns a Silverado into a “Stealth” Silverado. I mean, it looks cool, but it’s not 63k for a V6 truck cool.

          • 0 avatar
            Grunt

            we sell 2-4 of them a month though few with the new V6 which is standard on the LT models and more powerful than the old 4.8 liter V-8 it replaces. The new 5.3 V-8 is a $1095 option and the 6.2 is $1995.

          • 0 avatar
            NoGoYo

            Yeah, I found another Stealth at a dealer in New Jersey with the 5.3 V8 selling for $61,500 which is definitely more reasonable than $63 for a V6.

          • 0 avatar
            28-Cars-Later

            Thx for the info.

          • 0 avatar
            bball40dtw

            When you say “Stealth”, I think Dodge Stealth. My brain cannot reconcile the word Silverado directly following Stealth.

        • 0 avatar
          Bsimmons

          No unfortunately, the dealership owns it until they sell it. The only time the factory will take a car back from the dealer is if it suffers carrier damage during transit. All other times, if the dealer ordered it and the vehicle arrived there in good condition, they own it.

      • 0 avatar
        Kyree S. Williams

        Not that I’d ever do a 97-month loan, but at least an eight-year-old domestic truck is worth significantly more than an eight-year-old domestic sedan…and is more likely to still be in working order. An eight-year-old Malibu—especially the way they botched current one—is likely to be worth $4K or less.

        And while we’re at it, who advertises an 8-year loan? The way I understand it is that the dealerships trick people who are only focused on the payment by lowering the monthly payment and raising the term of the loan. And that only *after* they’ve driven home in the thing do they see that they now have to cough up a payment for *8* years…many of which will mostly be spent paying interest.

        Then again, maybe people really don’t care, as long as they can “afford” the car.

        • 0 avatar
          bball40dtw

          I am also suprise that they quoted the loan term. Usually its written, “ONLY $350 a month*******!” One of the astersiks means the rate is 18.5%. Another one is for the term of 134 months. God only knows what the rest are for. Probably current Ford Ranger owner, with two trade ins, and a down payment of 33%.

        • 0 avatar
          krhodes1

          @Kyree

          But that truck cost a lot more to start with. The difference in depreciation between the best and the worst is not much more than 10%.

          I think having a loan for longer than the warranty period is a bit silly, no matter what it vehicle it is for.

          Do people REALLY leave the dealership not understanding what they have signed up for? REALLY? I cannot even begin to imagine that. Then again, I drive finance guys crazy by actually READING and asking questions of the contract anytime I sign anything.

      • 0 avatar
        Grunt

        as I said above they can ask whatever they want for it as it is a conversion. Asking and getting are two different things :)

      • 0 avatar
        qest

        Sounds like what happens when the dealer fires one of the guys with access to order vehicles. Did you check their back lot? There might be a bunch more in all the worst colors!

    • 0 avatar
      highdesertcat

      28-Cars-Later, it is probably the only way that many people can afford to buy a car these days, considering the cost of them, both new and used.

      • 0 avatar
        28-Cars-Later

        This is indicative of a larger economic problem.

        • 0 avatar
          highdesertcat

          “This is indicative of a larger economic problem.”

          Yes, it is! People like to blame Shrub. Others like to blame Bill Clinton.

          But, truth be told, I was doing much, much better during their administrations than I am doing now, and America as a whole, is doing during the years of indecisive economic policy of the O* administration.

          America always gets exactly what it deserves because we vote for it! The majority rules!

          Many Americans like me only wish it didn’t have to hurt so bad, since MOST us can’t qualify for O*’s welfare line.

          • 0 avatar
            natrat

            you think the puppet they put in the white house has any thing to do with what happens? lol

          • 0 avatar
            highdesertcat

            natrat, national economic policy starts in the White House.

            During Carter things were bad, but not as bad as now.

            When Reagan came into office he kicked @ss and took names. Had Reagan’s turn-around started before I decided to get out of the military and retire, I would have stayed in for 30. Really!

            During Bush the Elder I did extremely well.

            Even better during Bill Clinton’s two terms. I thank Monica for giving him the inspiration to develop economic policy that put money into people’s pockets. Money that I could earn from them. Oh, whatta feeling!

            With Shrub, 9/11 and the aftermath, things slowed for me but I still did much better than I do now.

            When Shrub left office, I actually was at the top of my income and have never been able to get back to that level since, because people now have very little, if any, money left over by the end of the month. Some even have to go to the food bank at our church.

            I think if Hillary had been elected instead of O*, America would have had a decisive hand at the economic helm, even if Bill Clinton had been standing in the wings at the White House. Experience matters!

            So, yeah,the current puppet lacks experience in anything on a scale larger than a community, easily organized.

            Organizing a country, developing a national economic policy, currying international direction-setting, fuggetaboutit! Totally alien concepts for people who never left the safe and secure surroundings of their Harvard offices.

            But, dude, if you like how things are going for YOU, who am I to disagree with you?

          • 0 avatar
            cartunez

            If you blame Obama for the current economic mess then I have some nice bridges to sell you . While its true the current administration sucks at civil liberties etc etc. This financial mushroom cloud has been brewing since the Civil War and got worse once they enacted the permeant income tax and took the US off the Gold standard. The wheels will fall off this wagon soon enough just make sure you are prepared and enjoy the decline.

          • 0 avatar
            Slow_Joe_Crow

            I blame Geithner, the 2008-2009 crash could have been the moment to bail out the people instead of the plutocrats, but he was a good little Wall Street lapdog and carried water for the billionaires and shafted the people. Paul Krugman’s scathing review of Geithner’s book explains it better than I can.

          • 0 avatar
            highdesertcat

            Cartunez, I do not blame O* for the current economic mess. I blame O* for his indecisiveness and rudderless approach to uprighting the economy.

            That’s why I cited the accomplishments of Reagan, Bill Clinton and Shrub who all did a great deal for the great American unwashed masses. Most Americans were much better off with them in the White House than with the current occupant.

            All we have to show with O* is more welfare recipients, more foodstamp recipients and more unemployed Americans. Makes me think that the majority rule isn’t always the best way to travel. How about you?

            But I’m ready. I’m looking out for me and mine. Preparing for a long-term forced-austerity.

            I’m with you on this. I agree with what you wrote. And at my age I can’t just get another job and start over. So we brace for the worst and hope for the best.

          • 0 avatar
            highdesertcat

            Slow_Joe_Crow, I read Paul Krugman’s book.

            Quite frankly, given Paul Krugman’s political affiliations and philosophy, I wonder if Paul Krugman would not have swung the other way, and doubled down with even more bailouts, handouts and nationalizations.

          • 0 avatar

            The Clinton years were solid. The Bush 43 years were built on a bubble. We Americans tend to have unrealistic expectations. Recovery from the Bush 43 disaster isn’t going to happen quickly especially with the opposition party obstructing at every turn. The credit scores of many Americans were maimed. That doesn’t get fixed overnight. Those consumers tend to consume conservatively, avoiding the extra high interest rates and onerous terms their credit scores deserve until they get their credit rebuilt. A Republican in office can’t fix that.

            The welfare we should be concerned about is corporate welfare, which dwarfs social welfare. We have the second lowest effective tax rate in the developed world.

          • 0 avatar
            CJinSD

            The Clinton years were solid? Where were you observing from? Having worked in the tech sector during the implosion of the .com bubble, I’m having a hard time taking you seriously. An economy built on IPOs for companies whose business models ended with IPO was not a solid one.

          • 0 avatar
            highdesertcat

            CJinSD, ruggles has a point but it depends where the bystander was during the melee.

            Only speaking for myself, I did very well with Bill Clinton. His policies worked for me. Thank you Monica!

            With Shrub, I also did very well, but not until 2007 and 2008. One reason was that I sold all my GM stock and that added ka-ching to my viewpoint.

            But corporate welfare is a topic that is always hotly debated because corporate welfare for Republicans is one thing, but corporate welfare for Democrats and Liberals (aka Progressives) is something entirely different because they most often go bust, like A123, solar projects, and the like.

        • 0 avatar
          bumpy ii

          Not so much economic, as an evaporation of people willing to buy a car the size of an Impala, equipped and finished like a base-model Mirage, for $19,999. People who do have money want a vehicle finished to a far higher level, and are willing to sign on for the lengthy payments terms which make that possible.

        • 0 avatar
          krhodes1

          @28-Cars-Later

          It’s an expectations problem. People have champagne tastes and beer budgets. They always have. The difference is the lenders are willing to stretch the payments to let you buy the champagne, even when you should know better.

          • 0 avatar
            28-Cars-Later

            You have a point but to me I read it as further proof of an economic depression. Between two points in time a car’s price rises X percent, in theory the buyer’s wage/wealth etc. should rise along with it. But that isn’t happening, so finance companies allow for longer terms in order to make new loans and keep the debt cycle going and sales moving.

            In a post below I cite figures showing an MY04 Malibu and and MY14. If we use just the MSRPs there is $4465 between them. Even a luddite like myself will agree today’s Daeworolet is a better buy than the N-body, for just under a $4500 difference. Yet people are struggling whether it be flat wages, previous debts, underwater valuation on trades, etc.

      • 0 avatar
        TheyBeRollin

        It’s true. The rate of price inflation in cars is unreal.

        I wonder if a Malibu would actually still be on the road at the end of an 8-year loan. The car would just be setting up the owner for a life-long loan payment.

        • 0 avatar
          Maymar

          Well, it’s not like 2006 Malibus have up and disappeared from the road, now have they? Hell, the atrocious ’97-’03 Malibus are still soldering along, rusting away, and eating head gaskets, but still out there. The current Malibu is a poorly executed product, but the Ecotec isn’t a particularly unreliable engine.

          • 0 avatar
            danio3834

            Heck, a 2006 Malibu is still a solidly financable vehicle on a BHPH lot. With reasonable mileage, $5-7K isn’t out of the question.

          • 0 avatar
            TheyBeRollin

            People that own them aren’t paying car payments anymore. A 1-2k repair when you haven’t paid a car payment for a few years should be affordable.

        • 0 avatar
          jmo

          ” The rate of price inflation in cars is unreal.”

          No it’s not. A 2004 Camry LE was 19,500 and a new one is 23,500 which is 2% a year.

          • 0 avatar
            28-Cars-Later

            Incentives skew it but you’re basically right at least on midsize sedans.

            MY14 Malibu LS $23,165
            MY04 Malibu LS? $18,700

            While it is inferior to the Epsilon I Malibu it replaced, the current model is certainly superior to its N-body predecessor for only about $4500 more.

            http://autos.aol.com/cars-Chevrolet-Malibu-2004/overview/

            http://www.chevrolet.com/malibu-mid-size-sedan/build-your-own.html?x-zipcode=15017

          • 0 avatar
            highdesertcat

            jmo, money is worth a lot less than 5, 10 even 15 years ago.

            Everything has been cheapened in order to keep that 2% a year escalation.

            And it shows.

          • 0 avatar
            jmo

            “Everything has been cheapened in order to keep that 2% a year escalation.”

            Huh? Cars have never been as safe, powerful,
            efficient or more durable and reliable than they are today.

            So, what exactly is your point?

          • 0 avatar
            TheyBeRollin

            According to the tables, those that would be buying this vehicle have gained ~5k in income. Adjusting for cooked inflation calculations (nowhere near realistic), they’re down about 3k from 2004.

            Not sure how they could afford 20% more except through longer and longer loan terms.

          • 0 avatar
            jmo

            Adjusting for cooked inflation calculations

            The tinfoil hat brigade is out in force today.

          • 0 avatar
            TheyBeRollin

            You clearly failed trolling 101. You lost all credibility there.

            I’ll just leave you with reading material.

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

      • 0 avatar
        krhodes1

        And yet adjusted for inflation, cars are cheaper than ever. Adjusted for content, they might as well be free. The much maligned Mitsubishi Mirage has content and reliability Mercedes Benz could only dream of 40 years ago. And I sure would rather be paying 0-5% interest than the 10-20% that was common 20 years ago. If you don’t have the credit or income to get a decently cheap loan on a new car for a reasonable term, you have no business buying that car in the first place. There are plenty of VERY nice $5K used cars and trucks out there, even here in the Northeast.

    • 0 avatar
      CapVandal

      Sounds about right to me. The problem with long term loans is paying a lot of interest. But per the figures, that simply isn’t happening.

      People are borrowing an average of $27,612 for 66 months — so at an interest rate of 0%, they would be be paying $418 per month. Instead, they are paying $474 per month.

      The only real problem is the average loan of $28 K. There is no way to pay that off in 3 years without a big monthly payment. Like $767 per month @ zero interest.

      If people are paying 3 or 4% interest, then it doesn’t really matter how long it takes to pay off the loan.

  • avatar
    sco

    For new cars, 66 months means roughly 5-6 years, pretty long but cars are expensive. What shocks me is 61 months for used cars. Wow, you’d better have great faith in your ability to pick a quality used car to go with 5 year financing there.

    • 0 avatar
      bball40dtw

      CPO vehicles. They have special financing from the captive finance company for up to 72 months in many cases.

    • 0 avatar
      vbofw

      That’s wild. 61 months for a used car. That must be an ugly interest rate.

      Was just in L.A. Where every yahoo making $75 grand is driving a Mercedes. Probably ground zero for a lot of this expending debt.

      • 0 avatar
        bball40dtw

        We were offered 72 months at 1.9% on the CPO vehicle we purchased in August of last year. We did 60 months at 0.9% instead.

        On the flip side, I’ve seen plenty of people over 10%.

        • 0 avatar
          sco

          Well that’s maybe even worse. So you’ve got people buying… oh let’s say 2-3 year old CPO BMWs with a protection plan that takes them out to 5-6 years at which point they will still have 2-3 years of payments for a car that is pretty certain to need something expensive done. Still seems very risky

          • 0 avatar
            bball40dtw

            I didn’t buy a BMW, so I am not worried. I have already done the preventitive maintinance to my Ford D-platform CUV’s weak points (transmission, more transmission, and updated to the better spark plugs). I should have 100,000 miles of little to no trouble ahead.

            I would not bat an eye purchasing a Lincoln, Acura, Lexus, Infiniti, or Cadillac as a CPO. I wouldn’t buy a German car at all unless I did a lease.

      • 0 avatar
        TheyBeRollin

        But these people probably have good credit unless Daimler’s finance arm has gone crazy and is doing the same thing that GM and Chrysler are doing.

        You clearly don’t understand the math of life in a Prop 13 distorted world. The price of entry to living independently and driving a luxury car is about 45-50k, provided you’re willing and able to “live the lifestyle”. It doesn’t even require going into debt, it just requires being very flexible on housing. I’ve known quite a few people that lived like this.

        One prime example was a coworker (service tech) in his late 30s to early 40s when I knew him: He made $45k a year, ate out for all meals, worked out at the gym for 2 hours before hanging out at bars every night, and lived in a room that barely fit a full-size bed in an apartment with three roommates. He had been on a lease treadmill with Infiniti for years. This is a fairly typical lifestyle for singles under about 50 years old with no kids.

        When you have to rent due to the market, live a good portion of life in your car, and that car is your main status symbol, shifting to cheaper housing and using the difference to rent a nicer car is not that surprising.

    • 0 avatar
      duffman13

      When I bought my first car out of college I did a 5 year loan on a then 2-year old CPOed RSX Type-S with 30k miles on the clock. I put down half in cash, and my interest rate was in the 6% range This was in 2006, and I paid just over $20k OTD for it.

      We’ll be shopping for a family truckster in the near future, and in my pre-shopping research, $20k doesn’t get you very much on the 2-4yo used market unless you want a base-trim small CUV. Any of the mid-sizers like an Edge, or something capable like a 4-Runner or GC are up in the $25-30k range, and most of the stuff with 3 rows that’s not a CX-9 is also right pretty close to $30k.

      Also, it’s not the 1980s any more. If I’m picking something up that’s 3 years old and less than 40k on the clock, I don’t doubt for one second that it’ll last 5 more years and make it to 100k, or even 150k given that I don’t have an accident in it.

      • 0 avatar
        28-Cars-Later

        Nice pick on the RSX. FWIW go minivan on the family car as minivans have no resale. Just go lowball a couple CPO cars until you get a salesman who “gets it”. They wholesale 19s 2yo inc Siennas LEs. Just scoff at the 27K+ they put on used vans and offer 20ish for a mid level trim and walk away. Eventually someone will bite, its not like they are the hip thing to drive these days.

        MY12 Sienna LE, FWD

        05/12/14 NJ Regular $20,900 21,298 Above BLK 6G A Yes
        05/19/14 FRDKBURG Lease $18,800 21,453 Avg GRAY 6G A No
        05/28/14 HRSNBURG Regular $20,000 29,939 Above WHITE 4G A Yes
        05/22/14 FRDKBURG Regular $19,500 33,677 Above GRAY 6G Yes
        05/21/14 NJ Regular $16,200 35,473 Below BLUE 6G A No
        05/19/14 PA Lease $18,800 38,964 Avg BLACK 6G P Yes
        05/08/14 FRDKBURG Lease $17,100 60,223 Avg SILVER 6G A Yes

        MY12 Town and Country Touring, FWD

        05/19/14 FRDKBURG Lease $19,300 15,719 Above SILVEER 6G A Yes
        05/30/14 PA Regular $19,500 20,589 Above WHITE 6G A Yes
        05/30/14 PA Regular $18,500 24,476 Above WHITE 6G Yes
        05/14/14 PITTSBGH Regular $19,000 25,744 Above BLUE 6G A Yes
        05/07/14 PITTSBGH Regular $17,700 25,946 Above CHARCOA 6G A Yes
        05/28/14 NY Lease $16,200 27,377 Avg BLACK 6G A No
        05/30/14 PA Regular $20,900 30,635 Above GOLD 6G P No
        05/28/14 NJ Lease $15,200 38,580 Avg BLACK 6G A Yes
        05/21/14 PITTSBGH Lease $16,300 38,619 Avg SILVER 6G A Yes
        05/20/14 BALTWASH Lease $17,400 40,095 Above SILVER 6G A Yes
        05/30/14 PA Lease $16,000 42,204 Avg BLACK 6G P Yes
        05/12/14 NJ Regular $15,800 42,397 Avg GREY 6G A Yes
        05/05/14 NJ Regular $16,595 42,531 Avg Black 6G A Yes

        • 0 avatar
          bball40dtw

          I am waiting for the new Transit Connect Wagons values to fall off a cliff. A lightly used, two year old minivan, cheaper than a low end Focus/Cruze is just the ticket. That is, if I can bear parting with my C-Max.

        • 0 avatar
          duffman13

          Hip to drive matters though. The wife agrees on the utility, but can’t bring herself to drive something as ugly as a minivan. Her words, not mine. I don’t really feel like arguing with that, since I’m not the one who’ll have to drive it every day.

          We’re not anywhere near needing a 3-row either, plus I’d like something that can potentially tow 5000lbs (get the s2k on a trailer and take it to the track), which is Why I’m really thinking GC or 4Runner; I’m not to keen on the transmission of something FWD-based handling that kind of load.

          It will be a fun shopping experience though, because it *has* to be white. At least I’m around a year away from actually needing to pull the trigger.

          • 0 avatar
            28-Cars-Later

            CUVs are much uglier for the most part, and have a higher TCO inc insurance/gas/initial costs. If you have towing needs I too wouldn’t trust anything FWD, so as you mention its GC, 4Runner, etc. If I was looking to tow and have enough room for a car-seat I might look at gen 2 Liberty. They retail and wholesale in a similar space, mid to high teens. Resale is another point to mention to wifey, as those CUVs age and start to blow up (esp the AWD ones), the resale will dip significantly. Jeeps (until this point at least) generally command decent resale even with high miles and less than perfect condition.

            MY11 Liberty 4WD Sport:

            05/07/14 PITTSBGH Regular $16,100 27,674 Above GREEN 6G A Yes
            05/30/14 PA Regular $17,300 28,391 Above SILVER 6G O No
            05/09/14 PA Lease $14,000 29,862 Avg BLACK 6G A Yes
            05/23/14 PA Lease $14,800 30,517 Avg BLACK 6G A Yes
            05/30/14 PA Regular $15,700 31,103 Avg BLUE 6G A Yes
            05/20/14 NYMETSKY Regular $15,200 31,168 Avg GREEN 6G A Yes
            05/16/14 PA Regular $15,700 31,929 Avg BLACK 6G A Yes
            05/21/14 MILWAUKE Regular $16,400 33,912 Above BLACK 6G A Yes
            05/23/14 PA Lease $13,300 34,765 Avg SILVER 6G A Yes
            05/30/14 PA Regular $14,500 36,704 Avg SILVER 6G A Yes
            05/23/14 PA Regular $14,600 37,160 Avg SILVER 6G Yes
            05/07/14 NY Regular $12,800 38,319 Below BLACK 6G A No
            05/05/14 PA Lease $12,500 41,859 Below GREEN 6G A No
            05/21/14 DALLAS Regular $14,900 41,885 Avg WHITE 6G A Yes
            05/09/14 PA Lease $14,100 42,666 Avg BLACK 6G A Yes

            Additional:
            Based on bball’s point it might make sense to have a second vehicle for towing instead of trying to do both towing and people hauling. The only things that come to mind which accomplish both would be Suburban, its cousins, and Ford Expedition. For the price of entry of one of those new, you could have two rides, a CPO van and an used Liberty.

          • 0 avatar
            bball40dtw

            If you don’t mind me asking, how old are your kids? I think the longer you have kids, the easier it is to convince the wife to buy a minivan.

          • 0 avatar
            bball40dtw

            Gen 2 Liberty? Yuck. I wouldn’t want my wife and kid in one of those. Crash test scores were never its strong point, and it has a terrible interior. As a 2nd vehicle, I wouldn’t mind it though.

          • 0 avatar
            28-Cars-Later

            Agreed on interior however my mother’s gen 1 was rear ended and rebuilt twice, once while it was parked and once while she was stopped at a light. Ironically she was rear ended by a Saturn SL at what was estimated at 45mph in the non-parked incident. She swears by its crash-worthiness, not that her experiences diminish IIHS testing. If as a husband/father one is very concerned about crashes I say Volvo and don’t look back.

          • 0 avatar
            duffman13

            bball40d – They’re nonexistent currently but we’re hopeful right now.

            I hear you on the van thing though, all of my aunts have 3 kids and they swore by their vans until the oldest were old enough to drive.

          • 0 avatar
            bball40dtw

            28-

            That’s part of the reason we own an MKT. Its a big a$$ Volvo wagon thing.

            duffman-

            My wife HATED the Flex before we had a kid. Now, we own the Lincoln version because of the safety, space, and some towing ability. I think I could get her to let me purchase a minivan for myself. My C-Max is more than halfway to being a minivan. Sliding doors would do it.

      • 0 avatar
        zamoti

        What’s wrong with a cx9?!

  • avatar

    The average person doesn’t care what the loan-term is. They don’t care about depreciation. They don’t care about how much interest a bank will earn off of them…

    …they care about 2 THINGS:

    #1 Can you get me into a car?

    #2 Can I afford the monthly payment.

    Under that understanding, a 144-month car loan isn’t such a bad thing – especially on a “reliable” vehicle.

    Under that train of though, a 40 or 50-year mortgage isn’t such a bad thing.

    One of my clients bought a house 6 years ago and she waited to take out a loan for home improvement. Thinking she could cash in on her equity – towards $30,000 worth of improvements – which would raise the home value – she came to me applying for a loan to cash-out a small home improvement loan.

    Under Dodd-Frank she can’t borrow the money she’d need to borrow. Mind-you, her credit is excellent, she’s never been late on any payment in 6 years and she’s a retiree.

    DODD FRANK has PARALYZED THE HOME-BUYING MARKET.

    Their demand for a “lower-than 43% DTI” is ridiculous.

    Also note, she’ll be FORCED into a higher-interest personal loan just for simple improvements: siding/ roofing and windows – on an asbestos siding house with an old roof.

    Another of my clients is post-hurricane-Sandy and he got NO assistance because he was a renter – and he’d be forced to take out a low-interest-Government loan to put his life back together.

    The mortgage market has been over 75% refinances since Obama got into office and fewer than 20% new home purchases. This means newlywed 20-somethings CAN’T get a home unless they both earn a good salary and have no student loans. The only people able to buy right now either:

    a) have excellent credit and great salaries
    b) fixed income/ retirees.
    c) have homes that appreciated in value considerably and aren’t “underwater” on their balance.

    • 0 avatar
      mike978

      Surely you are not arguing that mortgage lending criteria should be easy. That is part of the cause of the previous financial crash – easy money and people being able to borrow too much and to easily. I have just bought a new house due to a work relocation and I was offered 5.5 times my salary – way in excess of what is affordable (and still be able to eat and live). So banks are lending, just they might be a little more selective, which is not a bad thing.

      • 0 avatar

        I’m not saying the lending criteria should be “too easy”, but it also shouldn’t be “too hard”/ “impossible”.

        The problem with our mortgage market is that the government’s involved.

        Let the FREE market handle it and BANKS WON’T MAKE RISKY LOANS because they won’t have any assurances of bailout or insurance.

        Years ago, home loans were SECURED because banks made damn sure you could afford a loan from them. Then what happened? Government got involved because people with questionable credit histories trying to keep up with the Jones’ couldn’t get loans.

        The government tried to use credit to rebuild after 9-11 and created a few years of false stability.

        • 0 avatar
          Scoutdude

          Sorry but it was the “free market” that got us into the mess in the first place. It was Wall St that were selling no income verification, no paper work loans as high quality investments, and private individual and organizations who were buying those junk loans. The gov’t backed loans still required proper qualification and paper work even if it was more lenient that they were in the past or are today.

          43% total DTI is not too low if anything it is too low. Yes the majority of loans in recent years have been refinance but a lot of that is due to the fact that numbers of homes being bought and sold be individuals is still very low and current rates still represent a bargain compared to what many were paying.

    • 0 avatar
      Hillman

      The qualifications for a home loan are way to easy. This coming from a 20 something. Sorry but I would argue that the 43 % DTI is absurdly generous with today’s job market. How you can save for retirement, eat, pay for cars, repairs for home and cars, etc is beyond me if almost half your paycheck is going to debt service.

      • 0 avatar

        “The qualifications for a home loan are way to easy. This coming from a 20 something. Sorry but I would argue that the 43 % DTI is absurdly generous with today’s job market.”

        AND WHAT STATE do YOU live in???

        Granted, my viewpoints are lopsided because I’m a New Yorker, but…

        • 0 avatar
          Hillman

          I am in Virginia. Not to be that guy but that is way to much leverage on a primary residence. If the values go down to where people are not spending half their income on debt service then so be it. It will be better for the economy overall if we get off the payment cycle and allow people to start building wealth.

          • 0 avatar

            In states like yours, 43% might be OK. I was watching a couple on HGTV buying a home for less than $200,000.

            My house was $250,000 only because it needed around $50,000 in home improvement as I bought it.

            The average house on my block in Queens is $400,000.

            There’s no way you’re swinging that if you and are in student loan debt.

      • 0 avatar
        krhodes1

        @Hillman

        Depends on how big that paycheck is. 43% of DTI is high on a $40K income. It’s probably way low for a single guy making $100K a year. But maybe appropriate for a guy with kids making $100K. I think more should be made of the exact circumstances, not just using a fixed percentage. One size does not fit all.

        And in the parts of the country that ARE doing well, there are a LOT of single folks making six-figure incomes. Pretty much anyone in IT beyond entry-level desktop support for a big company is there.

        I find the trick to being comfortable on any income is not being house-poor first, and car-poor second. I have no need of 2-story foyers or granite countertops in my little shack. In return I have a mortgage payment that is less than 10% of my current gross income. But I bought the place when I made 33% of what I make now, and I STILL have a roommate paying for a nice chunk of the monthly expenses. And unlike an awful lot of people, I feel no need to trade up to something fancier just because I can afford to. I drive much newer cars though. Priorities. :-)

    • 0 avatar
      Mathias

      “The average house on my block in Queens is $400,000.

      There’s no way you’re swinging that if you and are in student loan debt.”

      Ding ding ding!
      We have a winner.
      The houses are too expensive, compared to what people earn, and compared to their overall financial situation.

      I had to look up debt-to-income ratio, because as a ratio of debt to annual income, it made no sense… I found it means “debt service” to income. And 43 percent is plenty high for my taste.

      Given the precarious financial state of the average American, I think the housing market is headed for a long period of “flat at best” until housing and incomes are somewhat better aligned. There are too many people heading for retirement with way too little money… their houses will be slowly flowing onto an already saturated market.

      Houses are for living in, not for “investing.”

  • avatar
    OneAlpha

    Hmm. A loan for 97 months?

    Um, no.

    I can just picture Mr. Burns sliding the application toward Homer and saying, “Just sign here, and the money will be yours. Ha ha ha ha ha!!!”

    I got sold a bill of goods on my Bachelor’s degree. I won’t make that same mistake with a car.

    Again.

    • 0 avatar
      nickoo

      Join the $3500 unloved for life club. We have fully funded Roth IRAs and grape Flavor-aid. Often you’ll hear utterances of panther love, personal luxury coupés, and one man’s malaise is another man’s brown diesel AWD manual.

  • avatar
    TheyBeRollin

    After reading the 2013 article about subprime auto loans, I’m troubled by this. The cheap money that these types of loans supply, on top of the loss of used supply due to people keeping cars longer and the C4C program, used prices are being artificially inflated, which is pushing up all prices.

    Luckily, unlike housing, they’re easy to repossess. However, like housing, you can’t get rid of them in large numbers without depressing prices. I wonder how this’ll play out. I don’t know many people with auto loans and those with them tend to have higher credit scores (most of my coworkers are Millennials and most of them own funky older vehicles they didn’t need to finance (or, more often, they were handed down to them)).

    Any thoughts on when this will reverse, or are we seeing the start of another long-term housing-style inflation/stagnation cycle.

    • 0 avatar

      “Luckily, unlike housing, they’re easy to repossess. However, like housing, you can’t get rid of them in large numbers without depressing prices.”

      And that’s the key right there.

      They don’t mind giving a NEW car loan to a crappy Credit Score because they can repo’ if you don’t pay. They won’t give you a used loan as easily. This is causing problems for used car lots – forcing them to demand more cash up front to get people into a used German car – rather than a new “Malibu” which they won’t be able to drive with pride…

      …as if “they’ve made it” or something

      LOL.

      I say that because most of the used car buyers who go to Major World here in Queens are more likely to splurge for an S550, BMW7 or Audi A8 with 70,000 miles on it than to just take a brand new Chevy with a warranty.

      Imagine their surprise when they break down on the road.

      • 0 avatar
        TheyBeRollin

        The thing I wonder is what happens when these all start failing at a similar, if not higher, rate than mortgages did. Even if you can repossess them, what do you do with them? Much like houses that banks are still trickling out onto the market, you can’t just sell all of them without used prices dropping. Then again, you can’t hold them for a long time and expect them to retain/gain value like houses, either.

        • 0 avatar
          krhodes1

          The difference is most people NEED a car to get to work. So they will pay the car payment, or pay to get it fixed before they will pay the mortgage payment. People walked away from houses in many cases because they were so far underwater on them, as much as inability to pay. PLENTY of people could have paid those mortgages, they just chose not to. And really, if I was underwater by $250K on a $500K house, I would do the same. Of course, I would have never, ever spent that much on a house in the first place. That is a different discussion though.

      • 0 avatar
        DC Bruce

        Well, there are two things working at cross-purposes here. A used car doesn’t depreciate the minute the buyer drops off the lot the way a new car does. So, financing a high percentage of the used car’s price represents less of a risk to the lender than financing an equally high percentage of new car’s price. The used car loan will be “underwater,” if at all, for a shorter period of time.

        But the problem with all naive consumers who marvel at what a “great value” a used luxo machine from Germany is (not to mention various websites and magazines which should know better) is the unknown likelihood of expensive repairs. My one foray into German car ownership was a CPO and, actually, the car has turned out to be very reliable and comparatively inexpensive to operate . . . although not as inexpensive as my Honda Pilot.

        • 0 avatar
          krhodes1

          The reality is that most German cars are just fine to own out of warranty too. And some Japanese cars turn out to be disasters. But you can’t be stupid about it. If you can only afford payments and not repairs, don’t buy a car without a warranty full stop. And given that the warranty doesn’t cover routine maintenance, you had best budget for less than you can “afford” anyway.

        • 0 avatar
          Mathias

          >> A used car doesn’t depreciate the minute the buyer drops off the lot the way a new car does.

          The hell it doesn’t. The drop is about the same; it’s the rather substantial difference between wholesale and retail. At least 20 percent, which is not to be confused with a 20 percent profit margin.

          There’s an awful lot of frictional losses when a car changes ownership, used or new.

          If you buy the right new cars for the right price, it’s no better or worse than doing the same used.

  • avatar
    Thatkat09

    My sister’s 2008 PT Cruiser has a 6 year loan thats about to be paid off. Its held up amazingly well. When she took on the 6 year loan, I was pretty skeptical. But now that even a cheapo Chrysler can stand the test of time, 6 year loans really don’t seem that bad.

    • 0 avatar

      A 6-year, 72 month loan is the standard auto loan for a “finance”.

      Only Leases usually have shorter terms unless you do special financing with your own bank/credit union.

      Or at least that’s how we do it.

      • 0 avatar
        Thatkat09

        My only experiences with a 6 year loan was with my grandmothers Mazda 626. By the time she paid it off and traded it in for a Volvo, the 626 was collapsing in on itself. Hence my skepticism. One experience shouldn’t color my entire view but now that the quality of new cars is as good as it is, 6 years doesn’t seem all that bad if its the new normal. My parents only ever did 4 year loans which I thought was normal until now.

  • avatar
    Grahambo

    This is fantastic news. I finally may be able to swing that new 911 Turbo S.

  • avatar
    carguy

    Long car loans are a direct result of the Fed’s low interest rate policy as deferring payments only makes sense when interest charges don’t negate any monthly payment advantage derived from a longer term. As soon as the Fed turn the tap off this trend will disappear.

  • avatar
    Lou_BC

    I was looking at an advertising flyer for an RV company and in the fine print they were talking about 144 month and 168 month loans.

    If one needs those kinds of loans to buy a vehicle then they shouldn’t be buying one.
    Same can be said for mortgages. If you need anything more than 25 years to pay off then you shouldn’t own a house. 40 – 50 year loans? Crazy, even for a 24 year old who just graduated with a highly marketable degree.

  • avatar
    johnny ringo

    And I used to think that line from the old Cheech & Chong comedy album was hilarious: “Only $50 down and $50 a month for the next 50 years!” About the only way you can get a loan from a bank is to prove you don’t need the money; seriously, I wonder how this scenario will play out five or six years down the road when the various parts and of the vehicle begin to fail and the owner is still making monthly payments. Somehow I don’t think this is going to end well.

  • avatar

    “Easy Credit” is a euphemism that has different meanings to different people. What is the “Easy Credit” train? “Risky Credit” is the credit segment that includes BHPH and Sub Prime. That’s about a third of the auto credit market, which is more than Tier 1 “Fast Track” credit, 720 Beacon or higher. It seems this article is trying to say that people who don’t deserve credit are getting it and that that will lead to some kind of crisis. The issue is at what interest rate and equity position are loans being approved. If a loan is properly structured and priced for the credit situation of the borrow, there isn’t a lot of risk. Risky credit people leave a dealership with high interest rate loan, having put down a large chunk of cash, and driving a vehicle that fits a lender’s criteria. The car probably has a GPS transmitter on it to make it easy find should repossession become necessary. About a third of the vehicles ARE “repopped” in this credit niche. The high interest rates covers additional lender reserve for collecting costs and higher levels of repossession expense and deficiency as higher credit tiers.

    Where there is danger is when credit is extended to risky borrows WITHOUT pricing in the additional risk.

  • avatar
    smartascii

    I think part of the problem is that an increasing number of people are quite literally one unexpected three- to four-figure expense away from financial ruin. Let’s say you have a job that pays $15/hr. That’s $31,200, or right about the median income for those 25 and over. On a monthly basis, after average federal and state taxes, that’s around $2k. Let’s say you live someplace average, and rent on a 1-bedroom apartment is around $750. Very few people are willing to live without a cell phone and Internet, so your monthly “utility” bills are likely to average around $250. Great. Now we’re down half your income. Do you want to eat? You can probably manage, somehow, on $50 per week. $800 left. So you’ve got to go to work. Car insurance is likely somewhere around $100 (on average), gas will cost (10k mi/yr, $4/gal, 25mpg) $133, basic maintenance another $50. So you’ve got, what, $516 left? You haven’t done anything but work and eat, so what should you do? Saving up, even if you start this scenario with a working car, is going to be very hard, and cheap cars break, so when the $1000 big repair comes along, you’ll be screwed. Should you buy a used car with a warranty? That’ll probably be $12-15k minimum. How long’s the warranty? 3 years? Great. At 5% interest, that’s $360/mo before TT&L. And really, you can’t afford that. So maybe what makes the most sense is a new car with at 80-month term, becase a base Corolla now costs $238/mo, and you can at least hope that it won’t break in an expensive fashion before you’re done paying for it. And, I mean, really, you can’t afford that, either. But who will finance you a $5000 car over two years at 5%? No one. And, it’s worth remembering, this is the MEDIAN income, which means that half the country has it worse.

  • avatar
    cartunez

    Housing is over priced because the government did not allow the banks and Wall Street firms that added fuel to the crisis created by Greenspan and company to fail. The current automobile market is a mess much to much inventory and they are giving everyone who can walk a loan if they agree to the terms. During the crisis I bought a nice condo for 60K that had sold 3 yrs prior for 210K. All around me everyone is saying “housing market has improved come back in the waters fine”. The water is not fine here in Florida and if you are stupid enough to buy these over priced new homes and new cars then you deserve what you get. No more bailouts. PS I have no pity for the student loan crybabies who are suffering because they chose to major in what made them feel good instead of what skills does the world really need.

  • avatar
    SCE to AUX

    The growth of the silent unemployed/underemployed in the US, combined with heightened need to move the metal, is bound to produce 2009’s Carmageddon all over again.

    But hey, stop on down, there’s never been a better time to buy!

  • avatar
    APaGttH

    Wait, is the 8 years to pay at $460 month on a $31K MALIBU a feckin’ for real ad?

    Who would be so stupid to that price point, that payment on an 8 year term, on a ‘bu???

  • avatar
    Big Al from Oz

    Leaving the credit risk issues behind, what will be the risk or impact to the vehicle industry in the US of these extended loans?

    Will this create a reduction in vehicle sales in the mid term, just to create a ‘false’ market now?

    What will replace these loans in the future to maintain a reasonable and expanding vehicle industry?

    I think rather than people going out and buying blinged up motor vehicles that are really overvalued, maybe stiffer lending regulations should apply.

    This isn’t to reduce freedom, but to protect freedoms.

    Just extending terms of loans to create growth in the short term will affect the longer term.

    This isn’t good news.

  • avatar
    eggsalad

    Call me crazy, but I was raised not to buy things I couldn’t afford.

    In 2003, I needed a car, but I had $100. So I bought a $45 car, and spent $55 making it run.

    By ’09, I was doing much better, so I bought an ’05 Scion for $11,500. Which is what I had in the bank.

    The Scion is holding up swell, so I’m saving up my money for when it dies.

    Car loans are for suckers. Just like easy credit caused housing prices to soar, so does easy credit cause car prices to soar.

    Pay cash, people. Loans are for suckers.

    • 0 avatar
      APaGttH

      So you sunk $11.5K cash into a depreciating asset.

      You could have invested $10K back in 2009 – enjoyed astronomical growth in even a conservative S&P index fund, and gotten a low interest loan. If you hit a rough patch you could have cashed out your investments, keeping the profits and paying LT capital gains, made money.

      Ya – loans are for suckers.

      Loans are for suckers if you can’t pay them back. Loans make sense if you can leverage your wealth to make more money.

      If a car company offers me a 0% loan over 36, 48, heck even 60 months – I’ll take their free money any day of the week, and keep my ROI on stable investments.

      A sub-prime loan – now those are for suckers.

      • 0 avatar
        eggsalad

        Unless I have a job contract that outlasts the term of the loan, I may or may not be able to repay a loan.

        If you don’t have a 30-year contract, what guarantee do you have that you can pay a 30-year mortgage? None.

        • 0 avatar
          krhodes1

          Again – you HAD the money to pay off the loan at any time. You put that money to work for you instead of spending it on the car. You still have the money, plus interest, AND you now have the car. Your money will make you more money than it costs you to use other peoples money to buy the car. Even if you lose your job, you can cash out of the investments to pay the note on the car. Heck, I’d rather just leave the money sitting in a savings account as long as the rate on the loan is low enough. I’d rather have the liquidity in case of emergency. If you have a tight month or two you can take money out to pay the note.

          When you don’t NEED to borrow money is the very best time to borrow money.

          This isn’t rocket science kids.

          • 0 avatar
            eggsalad

            Maybe it’s not rocket science to you, but it is to me. Please don’t assume everyone is as financially savvy as you are.

      • 0 avatar
        TheyBeRollin

        I’m glad to see I’m not the only one that does this. As long as the interest rate is less than you’ll make on the capital and the lender will give you a loan, you take the loan. A 0% loan doesn’t even require thinking. You can shove that money in a savings account and get something, guaranteed, or you could invest it and do so much better.

        Now, if you can’t get better than a subprime loan, yes, paying cash is the better option.

        • 0 avatar
          highdesertcat

          By taking that 0% loan you’re paying a lot more for whatever it is you’re buying.

          To me it seems more financially astute to buy something that is discounted and pay for it with cash (if you have it) in Present Value, and be done with it. Plus, you don’t have to carry Full Coverage insurance on something that is not financed.

          Of course if you don’t have the money to pay cash for whatever it is you’re buying, the whole discussion is an exercise in futility because if you want it you’ll have to settle for whatever terms you can get, even 0% at full pop retail.

    • 0 avatar
      SaulTigh

      Well then, I’m a sucker. But, I haven’t for one minute regretted the 6 year loan I signed for last month (1.94% interest rate and not a dime changed hands before I drove off the lot). My household can easily afford the payment, and rent, and saving for retirement and just plain saving on top of that. I didn’t want to spend 3 years saving up $41k when I could be driving a brand new truck NOW. I try to balance the fact that I want to enjoy my day to day life NOW, while still planning for a rainy day and retirement.

      If you’re “lucky” to live long enough, you’re going to be $hitting yourself and paying for nursing home care, and you might not know your own name. I’ve seen it happen to several people I’ve known and I’m not going to to go down that road with money that I could have been enjoying now.

  • avatar
    JohnnyFirebird

    I’m not doing a 72 month finance again, that’s for sure. I figure if I can’t afford to pay for a car in 3 years, either lease or finance, I can’t afford the car. A life lesson learned!

    Yep, it’s better to buy a car in cash, but a low-interest rate short term loan is OK by me. Your mileage may vary.

    • 0 avatar
      28-Cars-Later

      Stick with used Volvos, the simpler the better, and run them for as long as you can. While S6/80 can’t quite match the legendary 200/700s in terms of tank like endurance, they are still well built cars made of quality material for the most part. You just have to deal with the FWD’s eccentricities.

      • 0 avatar
        Thatkat09

        I disagree with the S80 being well built, at least the first gen. My opinion, any Volvo with the 2.4i 5 cylinder and 5 speed auto/manual is a good bet. They may not be as bullet proof as the rwd volvos of old, but it sure comes close. Shame Volvo never sold the C30 with the 2.4i in the USA. A Starting price in the low 20s with decent milage and a great interior plus quirky styling, Volvo could of had a major hit on their hands.

  • avatar
    Slow_Joe_Crow

    I thought 5 year loans were long and 72 months was crazy. This is beyond crazy. I’m starting to look for a car after 12 years of driving a freebie and 12 years without a car payment and I don’t want more than a 4 year loan.

  • avatar
    raph

    I don’t see where any of this is a surprise or some sort of flabbergast? By and large average people don’t have any sort of real income to make a decent car payment so they have to extend it out.

    Manufacturers don’t make any money on your basic shitbox nor are people interested in buying a basic shitbox nor are they interested in giving up things like a smartphone or cable or whatever.

    Above average people who smartly manage their finances enjoy it while you can. If anybody ever puts a stop to this slow moving train wreck the burden of profitability will be shifted to you.

  • avatar
    -Nate

    Amazing .

    The basic concept of living within your means has been completely ignored .

    I’ve purchased two brandy new Motos but never a new car , I prolly shouldn’t have bought either of the Motos but I did , no loans .

    To be able to afford a house , I had to Man Up and live in The Ghetto ~ that’s life , Blue Collar schmucks are not entitled to live in fancy anything .

    -Nate

  • avatar
    JK43123

    Nearly $45 grand for a Malibu withe interest. really insane.

    John

  • avatar
    threeer

    Wow…and to think, I moved 8000 miles away to work in a *near* third-world country to make enough in the next three years to wipe my debt out and to be able to buy a modest used car for cash (thinking at most, $12k). What I should have done was simply stay in America and finance my next car for 84 months and relish in that low, low monthly payment.

  • avatar

    RE: The Clinton years were solid? Where were you observing from?”

    I was observing as an investor and from the auto business. You want to name us a more solid economic period in the country than the Clinton years? Yes, there was a tech bubble that burst for people invested in the stock market. That was nothing like the instant subtraction of 38% of household net worth this time around.

    RE: “Having worked in the tech sector during the implosion of the .com bubble, I’m having a hard time taking you seriously.”

    How serious should we take you as you seem to say that the tech sector equals the entire economy?

    RE: “An economy built on IPOs for companies whose business models ended with IPO was not a solid one.”

    There is a difference between correlation and causation. The Clinton economy had a lot more going for it than. There has never beena perfect economy. The Reagan economy, for example, was really the Volcker economy. The same could be said about the Bush 43 economy if you substitute the name Greenspan for Volcker. Reagan took office and led us directly into a recession. Or perhaps we should blame Volcker for that since he raised interest rates to fight inflation. Reagan was just along for the ride. Once inflation was beaten back, Volcker and the Fed lowered interest rates and the economy thrived. In the meantime, Reagan rolled back badly needed regulation. Some might recall the S&L meltdown which occurred on Bush 41’s watch. Some might recall Black Monday in 1987.

    Bottom line: Trying to charactize the overall economy by what happens in a single sector isn’t accurate. The mortgage crisis, which had its beginnings in the Reagan administration, melted down the world economy. It made the tech bubble look like a lit match next to Haley’s comet. We still have TRILLIONS of credit default swaps hanging over our head with only the net worth of the issuers backing them. Estimates range from $50 to “75 TRILLION. By contract, the world has about $7 TRILLION in insurance contracts in force with actual reserves established to pay claims.

    • 0 avatar
      CapVandal

      Don … not to put too fine a point on it, and not to say that credit derivatives aren’t evil, but from my perspective, the critical financial innovation that led to the 2008 meltdown was complex structured credit instruments. That is, CDO’s and CDO squared. Rather that CDS’s or credit derivatives.

      The vast majority of structured finance deals were sold to institutional investors like pension funds. Or other entities that had assets that needed to be invested in fixed income securities. Investors were desperate for yield and happy buying anything that offered a few extra basis points and seemed safe ( (high investment grade credit rating). Anyone that was buying structured credit instruments for yield, so it would be impossible to hedge and still get the extra yield. Toxic assets were CDO’s.

      HOWEVER

      Credit derivatives (CDS’s) are evil.

      1. They don’t facilitate anything of social value.
      2. Most of the ‘market prices’ are based on fragile, illiquid markets. The discipline that efficient markets impose doesn’t exist.
      3. They are used to evade prudent use of leverage … that is, increase leverage, sometimes drastically.
      4. Decrease transparency.
      5. Transfer risk in highly unpredictable ways.

      And plenty of other reasons I can’t think of off the top of my head.

      CDO’s have been around for a long time, and the more recent innovation of structuring into tranches is a good idea. The worst abuses come from good ideas that are carried too far, or in this case, run amok.

      This is the sort of thing that is not for normal people. It is complex, a lot of misinformation, and there is also a subjective element. Janet Tavakoli has some interesting blog articles as well as articles and her technical books.

      http://www.tavakolistructuredfinance.com/biography/

      I am not an expert on this, but have a lot of experience in other areas of finance.

      • 0 avatar

        If you want to track the root cause of the mortgage crisis you can go back to when a group of laissez faire types blocked the effort of the CFPB to regulate derivatives. You can get the complete story by watching the documentary “The Warning,” a PBS production. Some would say it goes back to the first securitization.

        The Fed chairman has a lot more to do with impacting the economy than the President EXCEPT in the instance of dismantling of needed regulation.

      • 0 avatar

        You may not have a lot of experience with derivatives, but you have pretty much nailed it! Derivatives are financial WMDs and are still hanging over our head waiting to exacerbate the next economic downturn. The derivative system can’t be unwound without chaos that can’t be controlled. Keeping the derivative system in place means we have economic and financial chaos around the corner at some point in the future. Unfortunately, we are FUC*ed with a capital “F.”

  • avatar
    CapVandal

    The average age of a car in the US is 11.4 years.

    The average person should be able to drive the average car for the average 11.4 years.

    Therefore the cost, excluding interest, of a new car is is less than $3000/year. Or $250/month.

    There is no way around the fact that 30,000 / 60 months is $500. Plus whatever the cost of how they are able or chose to finance it.

    Why should anyone really care about the term length over which cars are financed?

    Anyway, why isn’t anyone looking at craigslist? The average sales price can’t be over $3,000 and they are financed over 0 months. If someone can make bail (on occasion) they can scrounge up enough to find something on craigslist. A luxury vehicle — one that has 1/4 tank of gas, starts on a good morning, and the tires hold a little air.


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