Easy Credit Car Loans: The Perfect Storm Gathers
"And even those who keep paying their [car loan] bills may reach a point… where they simply can't afford another car. That could send vehicle sales down the drain, a nightmare scenario for an industry that has already taken a hit this year from slower consumer spending and higher gas prices." This little tidbit in the LA Times underscores a point TTAC made when GM first offered "Anyone with a Pulse" zero percent financing: easy credit creates short term gain leading to long-term pain. The Times identifies four warning signs that the easy credit chickens are coming home to roost. First, loan durations are growing. "Nearly 45 percent of loans are for longer than six years. Toyota Financial Services and Ford Credit are offering seven-year financing. And a few credit unions are tinkering with the eight-year note." Second, the loan amount is rising. "In October, the average amount financed hit $30,738, up $3,500 in just a year and nearly 40% in the last decade." Third, more and more customers are "backwards" on their loans, by a larger amount. "Today's average car owner owes $4,221 more than the vehicle is worth at the time it's sold." And fourth, an increasing number of these negative equity car owners are hanging fire on new cars– or simply defaulting. "S&P says delinquencies of more than 60 days on car loans issued this year to borrowers with the best credit are up 20 percent compared to those issued last year." Manufacturers and consumers alike are learning there's no such thing as a free car.
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