Equifax: Auto Lending At Record Highs, Delinquencies At Record Lows

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"I’m not saying only pay in cash every time. But keep your loan terms short. If you can’t pay for a used car in two years, or a new car in four, then you can’t afford the car." Many would argue that if you can't pay for the entire value of the car up front in cash then "you can't afford the car". The current car market has a big problem: the banks don't want to make subprime loans on used cars. They want to put subprime loans on NEW cars. This way, if you default, they can take back the car and sell it with high residual value - rather than repo'in a used car and already being "underwater" on it while it's rapidly depreciating month-over-month. People who can actually afford better, newer cars, aren't buying used cars because they are educated enough to know they are sh!tty deals without long-term warranties. Many of these people with cash and credit are LEASING instead. This is leaving huge used inventories. Another problem is that most people's main goal in building their credit is in buying a house - which once again opens up the same can of worms the car loan opened: Can you actually afford this house??? One of my clients got married. He and his wife make less than $5000 a month and $1800 of his monthly cash is going to child support. Yet she's trying to buy her "house in the hills" with $11,000 a year property taxes. I'm like: you make less than $55,000 a year YOU CAN'T AFFORD THAT. Someone else came to me for help. "I'm a teacha and my husbands a fyaman and we make around $110,000 a year and we wanna howse in Middle village" I go to look up the prices of those houses. Average house is $600,000 or higher. Ummmm... You can't afford that!!! People have no idea what they're doing. They see what they want and they go after it thinking some form of welfare will make up the difference. I blame the BANKS and the Dealerships for not being upfront with these people. I'm extremely painfully honest because I don't like surprises and I want my clients to have as much control over situations as possible. I could EASILY let you buy something I know you can't afford...or I can have you buy something I know you can afford - even if my fees are lower. FORGET than used BMW m6. Buy a brand new Malibu with an extended warranty and fully loaded!!! "Hell no- that's not cool". Lol - the used W221's around here are less than $35,000. and don't get me started on the used Bentley Continentals sitting on Hillside Avenue.

@bigtruckseriesreview @ Youtube I don't think car nerds / buffs are exempt from getting terrible loans on vehicles they can't afford, though. You get wrapped up in the Car & Driver / Top Gear culture of perfect driving cars and feel like you *should* be driving a top of the line 335i or FR-S or Mustang or body on frame pickup or whatever. Especially in your twenties you don't realize that a crappy financial decision will have repercussions ten years down the line. To young TTACers who are thinking about taking out a huge loan on a dream machine: You'll have 90% of the fun of an FR-S in a crappy 1999 Buick Century that you can afford, guys. I swear! Old beaters are their own kind of hilarious entertainment.

@bigtruckseriesreview @ Youtube I'm terrified of a home loan. I'm saving for the next ten years and hoping to get a nice place in the middle of nowhere.

@JohnnyFirebird Home loan? You will probably be fine if you put 20% down, buy what you can afford, have a stable job, and don't take out another loan to strip out the equity every time you can get it appraised higher.

@segfault That's tough to do when 75K houses go for 150K with 3-5K in taxes, and this in in the "cheap" part of the country.

@JohnnyFirebird You are better off buying a starter home then you are paying rent. At least you will be putting equity into yourself and appreciating the value of the home through upgrades That house is an investment. Unlike a car loan, a home loan is usually an appreciating investment. The trick is: not buying a house that you can't really afford. Eyeing a house that's more than 10% lower than the budget that you originally planned is even better.

@segfault 28- Has the Pittsburgh real estate market really gotten that out of whack?

@segfault Parts of it have, yes. Taxes have been going up in the past few years as well which necessitates people having to fight the reassessments.

@bigtruckseriesreview @ Youtube You know far more about this than I, but everything I have ever read states your primary residence is not an investment.

@bigtruckseriesreview @ Youtube "One of my clients got married. He and his wife make less than $5000 a month and $1800 of his monthly cash is going to child support." Jeez, three luxury car payments, or one good house payment being taken out of a couple making $60,000 a year, likely because some b_tch lied about the pill. Number one tip to millennial men. Get a vasectomy. Or maybe look into RISUG, which Parsemus Foundation is funding in the US. Donate here: https://www.parsemusfoundation.org/donate/ Regardless of whatever is different with the millennials, millennial women being desperate to trap men probably has not changed from any previous generation. But job opportunities have gotten worse and child support much more draconian. So don't get trapped.

@racer-esq. Well - actually he was STUPID. He got a girl pregnant. then later on had a second baby with her. When he realized she was a "slacker" and not willing to work harder for herself he left her for another career-oriented chick (who was shameless enough to marry him) and got married. I warned him. But no one listens...

@bigtruckseriesreview @ Youtube Depends how cheap the rent is. A bachelor lawyer buddy of mine rents a basement apartment for $550 a month inclusive. He's saving to buy the house he wants outright so he doesn't have to pay the bank so much in interest. The interest payments alone on the house he wants would be more than $550 a month for a long time into the mortgage, so he figures he can live well beneath his means for the time being and buy the house when he's got the cash. Of course, most up and coming lawyers aren't content living in basement apartments, even if they're nicely appointed.

@bigtruckseriesreview @ Youtube Ok, at least it's $1,800 for two kids, although as a lawyer I frequently see judgments that high out of not well-off guys for just one kid. But yeah, not a lot of sympathy in this particular case: "Fool me once, shame on you; fool me twice, shame on me."

@bigtruckseriesreview @ Youtube It depends on how you look at it. When I bought my first home, I realized I wasn't planning to live there until I died. Ergo, I didn't shop for a home that was "just right" for me, I shopped for a home that would be easy to sell and that would retain it's value or appreciate. Circumstances led me to sell the home home 3 years after I bought it, which was much sooner than I planned, but I was still able to sell in about 60 days and didn't lose a dime. Home buying may not be an "investment" like securities, but like car-buying, you will pay for emotional decision-making.

@bigtruckseriesreview @ Youtube Increasingly, guys let the wrong head do their thinking for them.

@segfault 20% down on a home? Surely you jest. At least in the new home market, 86% of all loans/mortgages are FHA backed (aka taxpayer subsidized), and the down payment ranges from 3.5% to 5%. Maybe 1 out of 96 purchasers does (or more likely, is able to) put more than 5% down.

@segfault Plus, most FHA loans require MIP/PMI to be paid for the life of the loan. MIP goes away after 11 years if you start at 90% LTV or less. Horrible.

@BTSR This one I agree with you on 100% - at least the "don't buy more than you need part". When I went house shopping 13 years ago I was pre-approved for $150K. I was making $40K at the time. I found a great 6-car garage with a detached 3br house for $127K. AND I had two roommates to help. Still have one roommate. I did take some money out over the years for improvements, but in the end refi'd for 15 years at 2.75%. My actual mortgage payment (less taxes and ins) is now less than my car payment on the BMW, which is a mighty nice place to be. I will admit, I am putting some real money into fixing up the place now, about $50K over 4 years, but it will all be in cash. And the house appraises at $250K now, so I would call it a solid investment. I LOVE watching the house porn channel on TV and seeing all the young couples house hunting for 4br 3 bath mcmansions with "2-story foyers" and granite countertops! For $400-500K, and they are always stretching their budgets. Hilarious.

I'm a web designer and work from home, so for me it's just the opposite. I could afford to lose my car (although I've still got the '97 Jetta, which has no lien on it) and still get to work, but it'd be really weird to sit and design websites on the street corner.

There's an old saying, if you can't make both your car and your mortgage payment, make the car payment, because you can live in your car but you can't drive your house to work.

Even at 0% interest there are pitfalls to a loan of this term. If you lose your job or otherwise can no longer afford the vehicle you're borked for about the first six years. To me this is a major problem. Also without some expensive F&I products you may run into problems if your vehicle is destroyed, a write-off, or stolen, and your insured amount is much less than the loan.

Join a CU. Mine is advertising used (3-5 yrs old)at rates of 2.74% for 60 months or 3.24% for 60 - 72 months. If you qualify for the 0% new, you should be able to get a competitive used rate too.

@05lgt A five year loan on a five year old car is a bad, bad idea.

@JohnnyFirebird make a down. Get a good deal. Always have equity. Sorry for your loss, but it doesn't define all the rules.

@JohnnyFirebird Assuming you can't get any better deal why not get the maximum term. Put the money in a Roth or savings account with some low risk investments and if worse comes to worse pay it off when needed. I know a lot of people who are doing that with the 4% 30 year fixed mortgages they have.

@JohnnyFirebird Meh, how far upside down can you REALLY get on a $25k car at 0%, unless you do something like trash it or drive 30k miles a year or roll in negative equity? One would hope that if you're considering a $25k new car, you've got at least a couple grand in the bank, which probably covers the upside down issue or makes the payments for 6 months if you have to. My opinion is that being a little upside down on a car loan is not a big deal because in order to be in the new car market in the first place, you should have some cash reserves, so you can buy your way out of it if you have to. And if it worries you that much, that's what Gap insurance is for. It's one of those problems that the internet makes a much bigger deal out of than it is in reality, unless you're doing something monumentally stupid or buying a depreciation king.

@S2k Chris " how far upside down can you REALLY get on a $25k car at 0%" Pretty far the moment you drive it off the dealer lot.

"If I want I can always pay off the loan early." It's worth noting that many people finance on the upper-end of their budget, and so don't leave themselves the option to do this (like my buddy that's got an $800/mo payment on a 2013 Challenger (and not even the HEMI). I signed up for 48 mos. on my new car, but plan to pay it off in less than half of that time by making equivalent payments on the principal each month. I think you should always leave yourself enough room that you can always afford your payment, or that you can temporarily stretch your loan term if you hit hard times.

@highdesertcat That's a good question! Let me show you. (That's my car dealership talk right there.) Let's say you bought a brand-new 2011 Malibu LTZ three years ago at 0% financing for 84 months. I'm going to use MSRP, yeah, you could get one with like four grand off, but this is for demonstration purposes. MSRP: $32,750 Usual F&I add-ons: $875 Total loan with tax: $38660.34 (And this is *without* an extended warranty to match your loan terms) Monthly payment: $460.24 Amount owing today (36 months in): $22,092 Approximate value of the vehicle with 80,000 kilometers (pretty average for three years): $12,500 So you're upside down almost ten grand on this car. But if you have the discipline to take a long term loan and then put the money aside to cover any shortfall, you're good, especially if you have it in a revenue generating bond or low-risk investment. I ran the numbers on an LT as well, about the same - $8000 upside down.

@05lgt Derp, I asked about a $25k car and you showed me financing $38k on a depreciation king of a Malibu. Do the same calc with an Accord or Civic or Camry or Corolla. Or even a $25k Cruze. It's absurd to think anyone anywhere ever paid $38k for a 2011 Malibu, and if they did they aren't worthy of being a subject of a serious discussion on new car financing.

@S2k Chris Heck, just did my own car. 2011 TSX. Total cost inc. taxes and interest is $32,100 ($535 x 60) at (I think) 1.9%. IIRC, I paid around $28.5k for the car, and tax in IL is 7%, so my OTD price was around $31k. Car has 60k miles. Making only the regular payment, my payoff right now is $14,100. Edmunds says my car is worth $16.3k as a trade in in "clean" condition (1 step below excellent), so call that $15.3k. I'm still good by a grand, and I have high mileage.

@S2k Chris As I said, I made the same calculation on a $26000 LT - the vehicle in question is somewhat academic. You're also more likely to get that long of a 0% loan on an American car versus Japanese, but here goes: Honda Accord, 4cyl, 4 door, automatic. I'll factor in $1000 off of MSRP. And this is with no down-payment. MSRP: $27490 Discount: $1000 F&I: $875 Approximate trade-in value with 80,000 kilometers: $13,500 Amount owing: $17,979 So you're still upside down, but only $3400 versus $9800. If you'd got an aggressively discounted LTZ you'd realistically be looking at a shortfall of $6000. Downpayments *are* a good thing, but especially when in the $25000 range more people are rolling in previous balances, so they're becoming less common.

@JohnnyFirebird WTF is a "kill o meter"? Are you using Canadian math? GTFO with that. Also, 84 months is a stupid-long term. 48-60 you aren't going to see this BS.

@S2k Chris That's because a 60 month loan is a much better idea than an 84 month loan. Also assume a high mileage car will be judged as rough-to-average. I've never known a wholesaler to pay "clean" on any car.

@S2k Chris ...that's kinda my point? That an 84 month loan, even at 0% interest, can be a bad idea of you have any kind of financial insecurity in your life.

@Kyree This strategy has saved me some grief. It's also good fun when the hard times don't hit and you pay off a 5 year note in under 2.

@05lgt Well I'm about to find that out for myself. With the program I'm under, VW picks up my first payment, so I'm just gonna take the payment amount and pay it toward the principle.