By on May 31, 2017

Bright colors and lowered prices try to attract customers to a California used car lot, Image: Bike Tourist/Bigstock.com

The low, low monthly payments offered by spreading the cost of a new or used vehicle across a vast gulf of time is certainly an attractive one, even though the practice is fraught with hidden danger.

For U.S. car buyers, it has also become a very popular one, with data showing just how many people have decided to embrace a 73- to 84-month payment plan. Not only are their spending habits changing, they’re also changing their lender.

According to data from information services company Experian published by Automotive News, long-term loans are proving increasingly popular with both new and used car buyers.

In the first quarter of 2009, the depths of the recession, 11.7 percent of auto loans were 73 to 84 months. At the time, consumer spending was not what it once was (or is now), with even stably employed people holding off on big ticket items like vehicles. Fast-forward eight years, and the picture changes drastically.

During the first two months of 2017, 33.8 percent of new-vehicle loans fell within this category. Not only that, term lengths within that top period are on the rise. Karl Kruppa, a senior automotive solutions consultant for Experian, says a full three-quarters of new-car loans in the fourth quarter of 2010 were 73 to 75 months. Now, borrowers are increasingly tapping the ceiling of that term window. In the final quarter of last year, 28.7 percent of those loans were for the full 84-month term, up from 17.1 percent in Q4 2010.

The trend carries over into used vehicles. While 30 percent of loans for 2016 model year vehicles fall within the 73 to 84 month term window, some lenders are now offering long-term loans on vehicles up to seven years old. Minuscule payments, yes, but with a larger cost of borrowing over the long term. With this kind of deal, be it on a new or old vehicle, cash-strapped buyers can find themselves in a much nicer vehicle than they thought they could afford — only to be soaked by interest or to realize their vehicle is worth less than what they owe.

Whatever the vehicle, consumers are increasingly turning to credit unions for their long-term loans. While banks and automakers’ financial divisions still see plenty of demand, credit unions see the most. Auto loans of 73 months or more made up 30.8 percent of the credit union portfolio in Q4 2016. For even longer-term loans, credit unions are still the preferred go-to.

[Image: Bike Tourist/Bigstock.com]

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97 Comments on “American Car Buyers Can’t Get Enough of Long-Term Car Loans...”


  • avatar
    jjklongisland

    How do you pass up a 72 month loan for $38,500 at 1.89% with no money out of pocket and all you have to do is sign up for auto debit from checking account. No brainer….

  • avatar
    LeMansteve

    What were interest rates like in 2009? How do they compare to interest rates in 2017?

    With a low rate, a long loan term on a new or slightly used car isn’t necessarily a bad decision.

    • 0 avatar
      notwhoithink

      So long as you’re OK with taking on a 7 year loan that will have you in negative equity for the first 5 years. That’s the hardest part, you end up stuck with a loan for a vehicle that is worth less than you owe, then you get into a situation where it’s costing too much to maintain or your transportation needs change, and you have no way to unload the car without writing a huge check (that you most likely can’t afford) or without rolling the negative equity into the next car purchase and maxing out the term on those loans.

      I get that maybe some financially stable and savvy people use these long term loans, figuring that their money gets a better return elsewhere. But let’s not delude ourselves into thinking that they are the norm. Most of the time these loans are used to get payments low enough that someone who couldn’t otherwise afford the car can “afford” to buy one, and they are the people who usually end up posting on online car sales or credit advice forums asking about how to make their negative equity magically disappear. I’ve seen people who have rolled their negative equity over into the next car 2 or even 3 times, who still can’t figure out where they’re going wrong.

      • 0 avatar
        sirwired

        It’s a gamble, but five years of negative equity on a new car is hardly a foolhardy invitation to financial disaster. Barring a catastrophic collision, the likelihood of a necessary repair so expensive as to be untenable is pretty low. A car of that young age is unlikely to require anything other than brakes, tires, and routine fluid changes.

        You may not like your car, you may very much wish you could get another one, but you are unlikely to be rendered destitute by it.

  • avatar
    mittencuh

    The local Hyundai dealer often has 0% 84 month financing available through a local credit union… even if you wanted a shorter loan free money is free money.

    • 0 avatar
      Scoutdude

      Well one reason would be to not be underwater the entire time you own the car. Of course if people were smart they would put that extra money they kept in an account and not touch until they need to trade the car in for less than they owe or the vehicle is totaled and they need to cover the difference.

    • 0 avatar
      87 Morgan

      The local Hyundai dealer has an arrangement with the credit union to buy down the rate for the customer. So, the money is not free, it looks free, but if the buyer wrote a check for the whole amount they discount that the dealer is paying to the credit union could be removed from the purchase price.

      There exists no factory incentive program for zero percent on 84 months with a local credit union.

  • avatar
    JMII

    I wounder how many of these loans actually make it to the end of the term. Are people paying them off early or just rolling the debt into a new loan?

    • 0 avatar
      Scoutdude

      You don’t have to pay off a vehicle to avoid rolling debt into your new loan. Even with a 7 year loan you’ll eventually get to the point where there is equity, assuming you don’t drive way more than average and don’t trash the vehicle. Sure it might not be until you’ve had the car for 5 or 6 years but you will eventually get there.

    • 0 avatar
      quaquaqua

      Well people are definitely keeping their cars longer than ever, so it surely makes sense for a lot of car buyers. But you’ll always have the uneducated types who get something new every 2 years. I dated a guy like that and basically berated him enough to stop doing that. Still dumped him, but I thought at least I made a difference.

  • avatar
    Glenn Mercer

    No doubt longer-term loans are a) a tool OEM finance captives can use to push more cars into an otherwise-saturated marketplace, and b) are dangerous in that they have inherently greater credit risk. &tc. But I am wondering if anyone has ever studied what the “right” or “optimal” loan term might be. Median age of the car fleet in the USA in 1975 was 5.5 years, roughly (source: R.L. Polk). Average loan term in the 1970s was about 4 years (source: NRC, 1992). Now the median fleet age is maybe 11 years (depending how you calculate). Shouldn’t loan terms be longer, also? I am not sure if they should be longer in direct proportion to fleet age (doubled, to maybe 8 years?!), but certainly longer than in the 1970s. (Or maybe there is a flaw in my reasoning, the Commentariat will certainly point that out!) Note IHS says average holding period (term of ownership) of the buyer of a new car has also climbed, from 4 years in the early 2000s to about 7 years now. So what is the “right” loan term? After all, we have 30-year home mortgages, and median age of owner-occupied housing in the USA is 37 years (source: American Housing Survey).

    • 0 avatar
      Scoutdude

      What does the median age of owner occupied housing have to do with mortgage length? The number of people who actually pay off their houses is very very low. Plus barring a major change in the immediate market area house values tend to increase over time assuming that reasonable maintenance is done. More often than people who pay their homes off are people who treat them like cash machines. Too frequently when I am looking at houses that are scheduled to be auctioned off at the county court house steps I’ll find someone who has refinanced their house multiple times with ever increasing balances. I’ve got my eye on one now where the person bought it with 10% down over 20 years ago however they did a number of 80/20 refi taking out the full amount of the then current value of the home. So now they owe over $400k on a house they originally got a loan for just over $100k. (and are ~$80k in arrears)

      Vehicles on the other hand depreciate the moment you drive them off the lot and continue to do so other than some limited production, special interest vehicles.

      • 0 avatar
        Glenn Mercer

        Good points. I only dredged up mortgages because I was trying to think of some guideline or analogy for figuring out what a “right” or “good” (pick any adjective) term was for a car loan. What do they call it, the “anchoring fallacy?” As in, just because we always had 4- and 5-year loans, is that the loan term duration we’d come up with if we had a clean sheet to start with? I mean, what if even a 4-year loan is “too long” already? Your point about cars depreciating is persuasive enough that maybe THREE years is too long. I am just trying to figure out what a logical answer would be. Sort of like pushing back on the medical research community which, as far as I can tell, came up with cholesterol guidelines by slapping a normal curve around averages. Is that indeed the way to get to a “good” number?

        • 0 avatar
          Scoutdude

          Personally I think the down payment is a huge factor in what is right for a loan. Fact is the biggest depreciation is the second you drive it off the lot and with a low or zero down loan you start off owing more than you could sell the vehicle for. If you put down enough to cover that then even with a fairly long loan you should always be above water.

          Autoweek used to do a financial evaluation of the vehicles they tested. Their metric was how long until the down payment is recovered. IE with their set down payment, which I think was 10% IIRC, and their loan length they calculated the balance by the month and the projected depreciation.

          To me that isn’t a bad metric, figure out when you plan to replace the car, calculate the down payment and loan length needed to give you enough equity so your trade covers the down payment of the replacement.

          On the other hand with 0% interest putting the minimum down and taking the longest possible time to pay it off could be the best financial decision. That of course assumes you actually have and keep the funds working for you.

          However the reality is that too many people can’t come up with a measly 10% down nor afford a payment on the car they want unless the marry it by going for the longest loan offered.

    • 0 avatar
      srh

      The “right” loan term is zero months. If you can’t afford to pay cash, you can’t afford the car.

      Of course there are opportunities for affluent buyers to borrow at low rates and invest the money elsewhere, but here’s a pro tip: If you can afford to game the car loan system, you have enough money that gaming the car loan system isn’t worth your time. Unless you do it as a hobby.

      • 0 avatar
        sitting@home

        Unless you happen to get $40k per pay check, nobody can afford a new car. Everybody has to make payments; whether it’s up front into a savings account or out back into a loan. Saving up will cost you less in the long run, but you won’t have a car for the 4 years it takes you to save up the money.

        In the end the only thing that matters is can you afford the depreciation averaged over the time you expect to keep the car, which for new cars approximates to the monthly lease payment.

        • 0 avatar
          brentrn

          You are very right. For the average person making $50K even if they could save the money it would be a stupid purchase as the car would be worth over half you annual income. That’s too much money to have tied up in transportation. Subsequent years your cars drops in value more than you were saving per year.

          I make $150K, have no debt, $50K in cash in the bank, and I can’t “afford” a new car. Why drop half my savings for such a poor use of money? I can get a one or two year old car for much less and keep more money in the bank, and not lose as much when I sell it.

        • 0 avatar
          srh

          If you want a $40K car and don’t have $40K, the solution is to save $5000 and buy a used Honda. Enjoy your reliable transportation for years while you save for the car you really want (but probably don’t need).

          When you have the money, buy the car you want. As a side benefit, by paying cash you’ll likely find that what you want is a lot closer to what you need. You can’t hide $5000 in options by spreading it out over 84 months when you’re writing a check up front.

          • 0 avatar
            hreardon

            While I don’t disagree with SRH’s desire to have no debt, we can do without the smug.

            We can say the same for housing, major dental work or hospital bills: everyone would love to pay cash for everything, but we don’t live in a system where many of us can do that.

            So long as you are responsible and stable, there’s minor risk only.

          • 0 avatar
            Powerlurker

            A $5000 used Honda in this day and age is at least 10 years old with at least 150,000 miles on it.

      • 0 avatar

        Less the 15% of new cars are bought for cash. The whole system would fail without credit.

        • 0 avatar
          srh

          The whole system would /change/ without credit. It would not fail.

          • 0 avatar

            Well I mean to some extent it would fail if 80% of your sales hinge on easy access to credit and you take that away, you no longer have enough sales to cover overhead and pretty much every automaker goes bankrupt. Now yes you can have a system without credit but fewer people would buy new cars which would drive up the price of used cars which would then place car ownership out of reach for the majority of Americans.

  • avatar
    sirwired

    As I comment every time TTAC posts one of these articles: The amount of time vehicles remain on the road AND the amount of time people retain the vehicles they purchase has risen in lock-step with loan lengths. A 6-7 year loan is the modern equivalent of the 4 year loan recommended by personal finance nannies since the freakin’ 80’s. (That said, I do question the idea of a long-term note on a car already, say, 5-6 years old.)

    Speaking for myself, I’m currently rocking my ’17 CR-V on a six-year note for 1.49%. (Wasn’t even any kind of incentive financing, just the regular rate offered by a local credit union.) I could have paid for the car in cash, but with rates that low, why would I?

    • 0 avatar
      ajla

      “I could have paid for the car in cash”

      How many people can say that though? The fear isn’t Mr. Liquidity & Investments doing a 60 month loan. It’s the people doing 84 months at max affordable payment that keep at most $800 in their checking account to cover rainy days.

    • 0 avatar
      Glenn Mercer

      GMTA!

    • 0 avatar

      There is some question in the logic of extended financing on a depreciating asset with a finite life span. There is also the question of why it’s happening, adjust for inflation cars aren’t alot more expensive then 10 years ago so why the extended terms? Some of it a tool to push consumers to more expensive cars but there may be other issues at play that don’t bode well for the auto finance people, mainly extending loans they now they will fail, by reselling them before that happens.

    • 0 avatar
      markf

      ” I could have paid for the car in cash, but with rates that low, why would I?”

      Cause the money you have to buy it is earning, maybe .2% interest. Same reason I paid cash for my 2017 4Runner TRD Off Road. I can pay the bank 1.5% to borrow money I already have or I can pay cash instead of money depreciating in the bank “earning” .2%

      I realize most folks are not in the situation to pay cash for new vehicles. Rates now are low so it makes sense loan limits are lengthening. New car prices are up so loans get longer.

      Most folks I know look at a car payment as a regular, unavoidable expense. I would guess most folks don’t really think about the difference between 48 and 72 months……

      • 0 avatar
        sirwired

        I didn’t use cash to pay for my car because I don’t want it tied up in a car, not because I haven’t noticed that savings rates are lower than even low loan rates.

  • avatar
    energetik9

    As long as there was significant penalty of higher rates, I’ve always gone long in my loan term…when I didn’t otherwise pay cash.

    I’ve always liked the flexibility. But in the end, I have never gone full term. I’ve always made double payments or paid the loan off early.

  • avatar
    kefkafloyd

    For a new car, a 6 year loan is probably not bad. 7 years is where I look sideways.

    If you’re buying a new car you really need to keep it for ten years, minimum, for the numbers to start working out in your favor. If you buy a new car as soon as you pay the other one off, you’re worse off than leasing because at least within three-year lease windows you’re barely going to do any maintenance. In five years you’re due at least one set of tires, and maybe brakes depending on how unlucky you are.

    • 0 avatar
      srh

      Welcome to “anchoring”. When Wendy’s offered a triple-cheeseburger, they found much greater uptake of the double-cheeseburger.

      When I bought my first car, back in 1999 perhaps? 5 year terms were just becoming a thing. Somehow that made the 4-year terms much more palatable.

      Start offering 6-year terms, and people feel smug by opting for 5-year terms.

      Now that 7-year terms are available? Suddenly a 6-year loan seems downright responsible.

    • 0 avatar
      lemko

      We kept my wife’s car for 11 years and 3 months. I wanted her to keep it for at least another two years, but she insisted on a new car. I still have my 1989 Cadillac Brougham after 28.5 years.

  • avatar
    supadoopa2

    Car prices keep going up, along with the price of everything else, but incomes have remained stagnant. It doesn’t take a rocket scientist to see why these super long term loans are on the rise.

  • avatar
    Fred

    Last time I went car shopping (just a few years ago) I overheard several buyers come in and the first words out of their mouth is “I can afford $X per month” Typical short term, paycheck to paycheck economics.

    • 0 avatar
      ajla

      Last time I was at the FCA dealer I witnessed a lady say she couldn’t afford repairs on her 2nd gen Liberty (she was in the service center) so she wanted to trade it in on something with the same payment.

      Not sure if she got what she wanted, but that’s the situation that is (very) risky. Not the rich guy doing a 70 month 0% loan because he doesn’t want to cut into his stock gains.

    • 0 avatar
      sirwired

      You gotta do what you gotta do. If you only have a certain amount left in your monthly paycheck, you get the term you need to make it work. The “Four-square” method of selling cars has been in use for decades because it works.

  • avatar
    28-Cars-Later

    Idiots. By taking the long loan you keep the current unsustainable price afloat. Stop buying for six months and the price will collapse.

  • avatar
    golden2husky

    While I believe you would be foolish to take terms of that length, sometimes it just makes sense to borrow the money. I went to a credit union for $30K when I bought my ’14 C7. Total was, including tax, $82K. I could have paid for it outright, but the interest was barely 1.5%. So that 30K I did not use for the car stayed invested in index funds. I would have been a fool to buy it outright. I’m so far ahead of the game from the returns of the last three years. Two more years to go!

  • avatar
    eggsalad

    There’s a theory that says that college has become so expensive *because* of the availability of easy credit. Does the same hold true for cars?

    • 0 avatar
      Cactuar

      I think that’s the case. People are buying loaded vehicles because the credit allows it, not necessarily because they need it or can afford it. If the opportunities for easy credit weren’t there, I suspect people would be more conservative with their purchases.

    • 0 avatar
      28-Cars-Later

      This is just a theory?

    • 0 avatar
      derekson

      This isn’t a theory, this is just a fact of how any market works.

      You increase the cash available to buy a certain good (and loans are usually tied to that good, not in the general money supply) faster than you increase the supply and you inflate the price of that good.

    • 0 avatar
      hreardon

      To some extent, yes. The big difference is that automakers have insanely high fixed costs and regulatory burdens that have added substantially to the price of our cars (not necessarily a bad thing for those who like environmental controls and safety). As an example: mandates for backup cameras for all vehicles isn’t free – you’re paying for it. Government just convinced you that they can wave a magic wand and suddenly, every car has them.

      Point being: there’s demand and there’s also regulations driving vehicle costs. Credit acts as an accelerator on the increase.

  • avatar
    Cactuar

    I was reading the “prices paid for a 2018” thread over at the Odyssey forum… I was amazed at the amounts people are spending on vans. One guy spent 53 grand for a van *before* taxes. For folks like me in Canada, that’s 71,500 CAD; add Québec taxes just for fun, and you’ve got yourself a 82,000 CAD, fully gapped and extended-warrantied van. I know the prices don’t translate exactly like this but still- the prices people are willing to pay for family transportation are out of this world.

    This debt bubble is bound to pop one day… and it won’t be pretty.

  • avatar
    APaGttH

    We have a growing underclass in this country, fueling anger, frustration, fear, and it is easily misdirected.

    In King County and Snohomish County, Washington (Seattle, Bellevue, Everett) if you’re a family of 4 with a household income of $72,000 a year, you’re considered “low income.” If you’re single with a household income of $52,000 a year, you’re considered “poor,” and if you make $48,000 a year you qualify for Section 8 housing.

    To give some perspective, a house around the corner for us sold 18 months ago for $1.4 million, it went on the market 5/11/17 for $1.6 million and sold the next day for $1.875 million. Average home value in our zip code is $850K, and we don’t live in Palm Beach.

    ATP for a new car in the United States, industry average, is $34.5K. At 20% down ($6.9K), 3% interest, and 48 month loan, payments are $617 a month. 7% sales tax, excise fees for license plates, insurance down, and down payment, you need to have $10K in cash or equity to swing the above deal.

    $617 a month X 12 = $7404 annual. If you’re making $75,000 a year, you’re car payment alone is eating up 10% of your pretax income.

    That isn’t sustainable for the average American, and $10K equity or cash plus 3% interest rate assumes a level of financial stability and responsibility that 40% of Americans don’t have. $34.5K again is the average transaction price, so on the bell curve 50% of transactions are larger, 50% are smaller (and the real question is, what is the Mean)

    You see this in every mainstream automaker now. The cheapest C-segment car in America is almost $17K sticker before destination. Good luck finding that base model version on a dealer lot beyond the lease ad special that was just sold yesterday.

    From $40K Chevrolet Impalas, $36K RAV-4s, $27K Honda Civics, and $53K Ford Explorers, or for that matter Cadillac Escalades that tickle $100K the mainstream and near luxury makers are abandoning the middle class.

    They are going for more upscale buyers who are more concerned about their 401K values then showing up the Johnsons in a BMW. The second owner of these vehicles is the American making $75K a year…and barely getting by.

    The system is broken.

    • 0 avatar
      Cactuar

      Do you think that when auto journalists complain of hard plastics and cheap interiors, it has an effect on the next product cycle? That could be why cars keep getting more refine and well equipped, but more expensive.

      • 0 avatar
        JimZ

        no, because for the most part “cheap and plasticky” is a throw-away line they use when they need to say *something* bad about a car. you know, even if it has the same proportion of soft-touch to hard plastic trim as another car they don’t call “plasticky.”

        If a model of car starts at under $30,000, /there will be some hard plastic interior trim./ Period. If it starts under $20,000, there will be a lot more. Period.

      • 0 avatar
        JuniperBug

        Adjusted for inflation – even ignoring content and durability – cars have never been cheaper than they are today.

        • 0 avatar
          ajla

          “even ignoring content and durability”

          This is incorrect. At least in the US.

          Something like a 1924 Model T was around $4K adjusted for inflation.

          american-automobiles.com/Ford/1924-Ford-Roadster.jpg

          american-automobiles.com/Ford/1924-Ford-Touring-Car.jpg

          Although even back then, many people needed a payment plan to buy a T.

        • 0 avatar
          APaGttH

          @JuniperBug

          Simply not true.

          A 1957 Chevy Bel Air 4-door station wagon had a sticker price of $2,680.

          Using the CPI inflation calculator from bls.gov — that would translate into $23,580.02 today.

          A Chevy Traverse LS Base FWD with no options, in white, costs $28,700 today – and would be the closest thing that Chevrolet offers to a Bel Air wagon.

          • 0 avatar
            markf

            “@JuniperBug

            Simply not true.

            A 1957 Chevy Bel Air 4-door station wagon had a sticker price of $2,680.

            Using the CPI inflation calculator from bls.gov — that would translate into $23,580.02 today.

            A Chevy Traverse LS Base FWD with no options, in white, costs $28,700 today – and would be the closest thing that Chevrolet offers to a Bel Air wagon.”

            And for that 5K difference how much more in car are you getting? Did the ’57 have standard A/C, Power Windows/Brakes/Stereo/Infotainment, air bags, ABS, traction control, etc etc?

            Not to mention how much more reliable just about any car today is than a ’57 anything.

        • 0 avatar
          JuniperBug

          I don’t know about comparing car prices from the 1950s, but here are a few examples from my lifetime that I just researched using manufacturer websites, an online inflation calculator, and cargurus.com.

          1986 Dodge Caravan LE: $11,121, $24,811 in 2017
          2017 Dodge Caravan: $25,995

          Admittedly, the 1986’s sticker price was a little cheaper, but in 1986 these were in such high demand they were going for sticker (I know because my parents bought one, and they were lucky to get one at all). Today there’s bound to be cash on the hood. You also get an *extra* 170 hp or so, and the security of not crumpling up like a piece of paper in a K-car derived chassis, or dealing with a carburetor.

          1990 Mercedes 300E: $46,200, $86,434 in 2017
          2017 Mercedes E300: $52,150

          1992 Toyota Camry DX: $17,653, $30,763 in 2017
          2017 Toyota Camry: $23,070

          1998 Honda Civic LX: $15,145, $26,395 in 2017
          2017 Honda Civic sedan: $18,740

          As you can see, cars have hardly become more expensive, and that’s ignoring the increases in durability, power, safety, size, and features that make it almost silly to compare them in the first place.

          • 0 avatar

            It depends on what car and what year spread you use. Honestly it’s hard to compare.

          • 0 avatar
            ajla

            I think vehicle prices increased a lot from the early 1980s through the early 1990s.

            (Using a Corvette just because it has been in production a long time and information is easily available).

            A 1970 Corvette with power brakes/steering/windows, AC, AM-FM stereo, 454LS5, and a tilt/telescope wheel was about $40.5K inflation adjusted. This is pretty much the same inflation adjusted price of a similarly equipped Vette from the C1 in the 50s to the late 70s when things started creeping up. In ’88 the *base* price was was $62K adjusted.

            On the higher end, something like a C4 ZR1 was well over $100K adjusted while a ’67 L88 with basically everything on the order sheet was $53K.

          • 0 avatar
            Powerlurker

            Dodge doesn’t make a Caravan anymore, they only make the Grand Caravan (the long-wheelbase version).

      • 0 avatar
        APaGttH

        It is what buyers want and it is what shareholders want.

        A base Chevy Cruze will have the wiring harnesses and locations for the sensors, buttons, and features for luxury items. Front auto braking assist sensors don’t cost thousands of dollars per part, or to install, but they can charge 4-digits for the technology.

        Buyers want it because you’re not safe in a car that won’t stop for you and shareholders want it because of profit. Dealers want it because of profit and in the end, as TTAC has pointed out countless times, the customer of the auto industry is not you and me, it is dealers, who typically floor finance their inventory.

        The average American is left in the dust.

        I have written in various places that if the person building the Toyota Camry can’t buy the Toyota Camry, eventually the American economy, which is 70% consumer spending driven, collapses in on itself. It isn’t an issue of privilege, and I’ll point out to the automatic reply, “well serves them right if they didn’t go to college,” that many manufacturing jobs now require at least some college level classes, if I work for Harley-Davidson for 5 years I get a free motorcycle, and even Bentley has an employee lease purchase program so that the person building the Bentley, can drive a Bentley.

        A consumer economy is driven on the ability of people to consume goods. It really is that simple.

    • 0 avatar
      JuniperBug

      In this case it’s less the system than it is the people. We don’t need the kind of cars we’re buying, we’re just brainwashed into believing that we deserve them. A new lower-end Civic sedan has more luxury stuff and drives better than many a luxury car from the early 80s, a base Caravan will outrun Porsches from the 60s, yet people with precious little money to spare will still buy far more expensive cars than these to go drive in traffic that won’t even allow them to come anywhere near exploiting the cars’ capabilities.

      There are many systems in the world that are broken, but the one that concerns me the most is people’s inability to prioritize needs and wants correctly. If you’re drowning in debt, you don’t “deserve” the V6 or the soft-touch glove box. This is a thought process that should be learned by about 10 years old. The fact that the average adult consumer can’t do it is terrifying.

      • 0 avatar
        Kendahl

        I’ve often wondered what a new car would cost if it were built to 1967 standards using newer technology only where it would be cheaper or better for the same price. (Yes, it would be a polluting death trap with miserable performance but that’s not the point of the exercise.)

      • 0 avatar

        People are not really all that logical. Really the bigger issue is easy credit that can do more long term harm then good to our economy. Credit is a powerful and useful tool, but too much credit like anything else is not a good idea.

    • 0 avatar

      My local VW shop had more Jetta S base than any other variety….and they were only too happy to put $1500 on the hood, .5% lease, and still discounted off sticker…

    • 0 avatar
      Scoutdude

      Lets put things in full perspective. There are still affordable areas in King County and Pierce and Snohomish are still relatively affordable.

      King County Single family Median $560K, Condo $339
      Snohomish SF $399K, Condo $270K
      Pierce SF $284K Condo $198K

      Even within KC there are still reasonably affordable areas. As I write this there are 632 active SF listings in KC that are under that $560K median out of the 2122.

      Some of the more affordable areas

      Auburn SF $350K, Condo $216K
      Kent SF $358K, $212K
      Federal Way $335K, $145K

      So that $72K low income can still buy a house in King County.

      And Seattle overall is significantly less than your zip with SF at $632K and Condo $341K

      The fact of the matter is the prices are going up as quickly as they are because there are a lot of able buyers out there that are willing to pay ever increasing prices while we still have a seller’s stand off where there are lots of people who would like to sell and buy something new but are paralyzed because they are afraid they won’t be able to find a replacement. In fact there are a surprising number of people who are buying their new house before listing their old.

      All values are as of the end of Apr since it will be a few more hours until the May numbers are available.

      • 0 avatar

        I’m not sure you can consider any housing over 300k affordable on 72k household income. Under 250k would be more realistic.

      • 0 avatar
        APaGttH

        ….King County Single family Median $560K, Condo $339
        Snohomish SF $399K, Condo $270K
        Pierce SF $284K Condo $198K…

        This looks like old data.

        Any housing “savings” obtained by living in Auburn or Federal Way is destroyed by a 90 to 120 minute 2X a day commute in stop and go traffic.

        Remember, we’re trying not to go upside down on a car loan here, or beat a used car to death to turn it into a maintenance nightmare.

        Oh you’re car overheated in traffic again? George Jetson, you’ve been fired from your $50K a year a job.

        If you’re making $50K to $70K a year, with good credit, the most house you can buy is $170K to $270K. There is no “affordable” housing.

        You’ll still need at least 3-1/2% down, plus closing costs, and pay outrageous PMI on the life of the loan, in an up market, with a risk of going upside down.

        But hey, let’s keep it in perspective, it’s 2005 all over again and yes by golly, if you move far enough away you too can afford a fabulous condo in Federal Way. If you don’t mind strip malls, gun fire, drug dealers, and the occasional hooker out on Pacific Highway.

        I mean the regional joke about Federal Way is that it exists so that Tacoma has a neighboring town it can look down at.

  • avatar
    whisperquiet

    http://www.mybudget360.com/wp-content/uploads/2015/08/cost-of-living-chart.jpg

    Cars have gone up in price at a rate greatly exceeding inflation since 1975.

  • avatar
    87 Morgan

    I have enjoyed reading the comment thread on this piece. Some really well researched and then Guthrie out comments.

    My two cents is the argument that adjusted for inflation cars today are cheaper or not. I respectfully call BS on this for one primary reason. We are not comparing apples to apples, even if you comparing a 1990 Camry Le to a like model today. Seems to me, you would need to strip the new one down to equal the old in terms of safety components. Pull the 8 or whatever airbags, or at least the cost of the items from the purchase price of the new car and you may get somewhere close to an inflation adjusted figure. Regulation has dramatically increased the cost of the cars, which is why costs have inflated in the fashion as they have.

    I bought my 03′ Ram 2500 diesel MT 4×4 in June 2003 for 28.7k plus tax. According to ram trucks.com the exact truck I bought the, today would be $54,250 MSRP. If I recall, the MSRP of the 03 was 34.5k ish, so I purchased for 83% of MSRP. Using the same percent, means the truce price of the new one would be $45,129. The new truck is $16,429 more expensive. A huge portion of that cost increase is the expense associated with the emissions equipment, additional safety gear. I can’t recall if my 03 had side curtain bags or not. To be clear, I am not grousing about the emissions and safety items being required, more trying to come back to some of the reasons for cost increases.

    My 2016 W2 was almost the same as the one I received in 2003. I make a good living today, but I made a great living in 2003! I have zero prospects or belief that my income will increase dramatically for the remainder of my working “lifetime”. I am a standard issue college educated guy, even down to the fraternity membership and am fairly certain that I am not alone with reality I achieved peak income in my late 20’s to early 30’s.

    Long way around the barn, long term loans are equal to the current buyers inability to afford the monthly payment on today’s cars/trucks. Cost have increased substantially, incomes have not.

    • 0 avatar
      APaGttH

      … I respectfully call BS on this for one primary reason. We are not comparing apples to apples, even if you comparing a 1990 Camry Le to a like model today. Seems to me, you would need to strip the new one down to equal the old in terms of safety components. Pull the 8 or whatever airbags, or at least the cost of the items from the purchase price of the new car and you may get somewhere close to an inflation adjusted figure….

      But I don’t think it is that simple. Yes, some components as you noted like safety equipment cost a lot more than a car 40 years ago that had…almost no safety equipment to speak of.

      However, certain components almost certainly cost more than they did today, and got cheaper with time, and that is why they are included. I would speculate a stereo head unit today with all the IC and chips is cheaper to build than its analog companion (they just can charge more for it). Infotainment and other related systems are computers, and chips are dirt cheap. Think about how much that CRT touch screen must have cost in an ’88 Reatta in comparison.

      If we still had steel, stylized, chrome plated 5 MPH bumpers, I would speculate they would cost far more today then a plastic molded bumper cover over a piece of throw away, unfinished metal. Never mind the cost of computer engine controls, and fuel injection components today. On the interiors today people pay extra for the privilege for vinyl, sorry, sorry, “leatherette” seating and get cloth for free. We may mock both the vinyl and velour, but they last forever compared to modern materials.

      I could go on – but I think there are some things you are spot on, certain “standard” equipment items were near unthinkable — but airbags for example have been around since the ’70s

  • avatar
    LS1Fan

    There’s two variables at work.

    One: income has not kept pace with costs of living. Even if cars are cheaper then ever with inflation considered, wage growth in some areas has either remained stagnant or gone negative.

    Two: The professional American has more debt, which eats into available income. Proper financial guidance is ones transportation expenses should be no more then 30% of total income. Well ,less student loans and living costs there isn’t much room for a high payment.

    • 0 avatar
      drivelikejehu

      For me at least, cost of living is more of an issue than wages. Being in the DC Metro area, my household income is decent on paper but very limited in practice, particularly with $1,200 monthly student loan payments (for which I can’t deduct interest due to the income phaseout).

      It’s definitely a conundrum for me because my wife’s ’05 Camry and my ’06 3-series (thanks dad) are getting a bit long in the tooth. There’s definitely no new car that I both (a) can afford and (b) want to drive.

      I’m just hoping that the post-recession car buying surge continues to put downward pressure on used car prices.

  • avatar
    SoCalMikester

    the people dumb enough to get themselves into a situation like this by trying to appear “hood rich” are the same ones who couldnt afford a single new tire for their luxury g-ride. but they live in section 8 housing, so thats one way they can “afford” it.

    • 0 avatar
      APaGttH

      When an annual income of $48,000 a year qualifies you for Section 8 housing, and when a family of 4 making $72,000 a year is considered “low income,” there is a bigger problem at play.

    • 0 avatar
      lemko

      I think about the price of one tire for these huge luxury trucks and SUVs. A set of four tires for my ordinary Toyota Avalon was $900. I can’t imagine what the tires cost for those vehicles.

  • avatar
    zip89123

    Vehicles are so damn expensive one needs 84 months to pay it off.

    • 0 avatar
      Cactuar

      Used cars are inexpensive, more people should try them.

      • 0 avatar

        Well at the moment their not actually their starting to come down but used car prices adjusted for inflation are way higher then they were 10 years ago.

        Now as I my self am a cash used car buyer I know that’s not what you meant but it’s still important to note. Also note people are taking out longer loans on used cars as well so it’s an issue all around.

      • 0 avatar
        Adam Tonge

        People are taking longer term loans on used vehicles as well. I see hundreds of vehicle loans every month and maybe 3-5 are less than 60 months.

  • avatar
    Tele Vision

    I’ve had one new car in my 47 years. It was a Hyundai Accent 5-speed manual hatchback. CDN$10,000. Good car but I gave it away five years later to a broke musician friend. Before my only new car I had two Suburbans; two Parisienne wagons; and a 944. All were purchased used and needed minimal upkeep ( the 944 needed a distributor and rear tires, though. Oof ). Since the Hyundai Accent I’ve had a Jeep Grand Cherokee and an Intrepid ( great cars, both ) and we currently have a 2013 Equinox; a 2010 F150 SCab; and a 2007 CTS-V. All bought used with cash.

    My advice: Don’t be wowed by what’s coming down the ‘pike. Run what you have for a few years and save up for what you want. The car that you though was ‘wicked awesome’ four years ago will be worth less than half of what it was when new four years later. Should it be a common model it’ll likely be less as there will be more to choose from.

    /$0.02

  • avatar
    PentastarPride

    I pay myself a car payment. I am on the “buy 3-5 year old cars and keep for a decade” plan.

    My wife buys new and finances, but she finances for 48 months and does make a substantial down payment.

    84 months is ridiculous. Sure way to go underwater, a lot of cars will be worth less than the loan is worth after a couple of years.

    Sound familiar? With real estate, it’s harder to guage your equity as the market and external factors add too many variables, but with a car, it is quite simple. It is a depreciating asset.

  • avatar
    DearS

    A $20k Subaru or Honda with 0% interest for 7 years is a great deal IMO. I spend $2k every year on my used car between payments and depreciation. Seven years from now my car would be worth at least the 6k left on the load, not to mention the $2500 I saved by not paying 2% interest or inflation.

  • avatar
    tomLU86

    Cars are more expensive today, relative to American’s income.

    A base new Mustang cost $2350 in 1964. Multiply by 5x or 6x for inflation, that’s $12k to $14k today. That was a stylish small car. Ford actually made them–I drove one for sale the other day. BASE. Power nothing, 3 on the floor, six cyl.

    Back then, the income taxes and FICA taxes on working Americans were a much lower percentage than now. I estimate the min wage was $1.50 at least (it was $1.90 in the latte 1960s), or about $3000 a year.

    That 1964 wouldn’t last as long as a new car, for sure (although it would have more ‘affection’, as X owners obviously kept the car in decent shape over 5 decades). But it was more affordable to replace.

    Of course, we have 50 years of progress. Driving that Mustang points it out. An new car does EVERYTHING better and is safer. So how did we get that additional “content”?

    Some of it is productivity, but most of it is lower labor. GM made 70% of its cars in the 1970s. Ford 50%. Chrysler less. Now all they make are the stampings, bodies, engines, and (most) trans. The mufflers, seats, etc, are outsourced.

    That keeps the cost down. But by driving down wages and exporting jobs, it also reduces the pool of people who could afford cars and other things.

    This reduced purchasing power is the main driver for the long loans. People living on the edge…one paycheck from disaster.

    One of the writers noted the median car age was 5.5 year in 1974, 11 now. Cars do hold up much better, so a long note is more plausible.

    But in the end, financially, it’s a bad deal for the people who sign the note, and a great deal for the top 1% of the entities issuing the note.

    That is essentially slavery under the veneer of “free markets”

    I love this website!

    • 0 avatar

      Overall taxation was likely lower on the average american in the 60’s but actual federal income tax was similar to maybe a little bit higher.

      https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets/

      • 0 avatar
        tomLU86

        “Overall” includes incomes of $10,20,50,100 million. For them, the rate has gone way down. So maybe the “overall” tax rate hasn’t changed.

        But for the 95%, it has definely gone UP at all levels: Fed, State, local, real estate, and of course FICA!!!

        Not FICA over $125k. Doesn’t affect Warren Buffet.

        • 0 avatar

          Actually amazingly enough the fedral income rate is lower according to the document under 75K is now at 15% for joint filer, in the 1964 your rate would be anywhere from 16-22%. Federal income taxes are at historic lows for most people. Now add in state income taxes and sales taxes which have all grown as well as FICA, and overall taxation is another issue.

  • avatar
    Domestic Hearse

    We can argue till the cows come home whether or not long-term loans are good for consumers. Consumers taking these deals do currently have positive opportunities like higher-than-usual incentives on almost all new vehicles to offset the long-term interest. But there is still the negative of being upside-down for almost the entirety of the loan.

    And this is where it starts to become a problem for the OEMs – these long-term loans mean you’ve pushed people out to longer trade cycles. From four years a couple decades ago, to as many as eight years today. Sure, dealers can pile negative equity into the next new vehicle’s financing. But there’s a limit how many times you can do that (120% of MSRP? There may be a few institutions willing to take that paper.) And yes, the OEMs can offer pull-ahead programs which offset some of the negative equity in their consumers’ vehicles. But usually, it’s less than $1,000…certainly not enough to make a difference until the final year or two of the loan’s term.

    None of this is sustainable, long-term. Current sales levels cannot be maintained with seven-eight year financing. There aren’t enough short-term financing and cash buyers left to make up for the get-me-done payment buyers signing on for eight years (and are effectively out of the market for at least the next six years).

    And don’t get me started on heavily subsidized lease deals. That, too, is unsustainable. Many OEMs make little profit initially, and then as a reward, they get back mountains of lease-backs that are worth less than the original lease residual, not to mention these lease-backs drive down both used car prices and cannibalize new car sales.

  • avatar
    tomLU86

    USA 1973; 210 million people, 15.5 million new cars/trucks sold.
    USA 2016: 310 million people, 18 million new cars/truck sold.

    USA 1973: Federal debt 30-35% of GDP
    USA 2017: Federal debt 100-105% of GDP

    So the longer car notes fit in….

    Average age up. Average wage (adjusted for inflation) down.

    Percent of wealth held by top 1%: WAY UP!

  • avatar
    mikey

    Some very interesting, and insightful comments here. Let me add my two cents worth.

    I would be one of those aging “boomers” . My wife and I worked long term for big corporations . Yes, and we enjoy that elusive benefit known as company pensions. We bought, and sold houses, a cottage, and countless vehicles. We paid for educations, weddings, and helped both kids with a down payment on their first house.

    Believe me, we gave “creative financing” a new meaning. That being said, early on we both vowed to be debt free before we turned 60. We hit that goal when I was 57. Today I get antsy when my Visa card hits $250.00

    Just a little advice, to the much younger crowd here. Don’t even entertain the thought of carrying debt into retirement. By all means, do what ever you need to do while bringing up family . If it means a 7 year loan to keep a reliable vehicle on the road ? Do what you have to do. Just keep in mind that one day you will be old. Don’t make the mistake that so many of my fellow Baby Boomers have. I’ve watched too many of my peer group sign the retirement papers , while carrying car payments, and mortgages . I see those same people today, stocking shelves at Wall Mart, and working 12 hour shifts behind the wheel of a cab.

    Just my 00.2

  • avatar
    sportyaccordy

    We just bought 2 new to us cars (2012 G37S, 2011 MKX) with a decent bit down and 60 month loans. At 2.2% APR it was a complete no brainer; the combined interest on the 2 ~15K loans is about $1500. I also have no qualms about having these cars that far out… I bought a 10 year old 350Z and drove it for 2 years; one of the most reliable cars I’ve owned.

    Only real scare is infotainment honestly; My Ford Touch is modern enough for us and while the G’s infotainment is a bit ancient the aftermarket has stepped in with some pretty slick updates.


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