Explosive Growth For Long Term Auto Loans In Q3 2014
Red-hot auto sales and increasingly pricey cars are generally seen as a sign of a resurgent economy and a consumer base that is finally prospering after years of stagnant wages and poor prospects. But according to data from Experian, much of the growth may come from practices generally regarded as financially unhealthy.
In particular, major growth in loans lasting 73-84 months occurred in Q3 of 2014. These long term loans were once unheard of in the United States, but are now seen as a way to lower monthly payments on vehicles that may not be affordable for consumers on a more traditional 36, 48 or 60 month loan.
New vehicle loans lasting between 6 and 7 years grew an astonishing 23.7 percent year over year, with used vehicle loans for the same term growing 18 percent in that same period. The average amount financed was up nearly 4 percent to $27,799 for a new vehicle, and roughly 3.5 percent for pre-owned vehicles, to $18,656. Leasing, another way for consumers to manage lower payments on a pricier vehicle, grew 7.1 percent year over year, to account for nearly 30 percent of all vehicle financing.
With the average age of vehicles pushing 11 years, many consumers are finally replacing their old car now that the economy appears more stable. While the lower payments may be easier to manage, the downside is that the consumer may very well be underwater on their loan before the vehicle is paid off, and trading it in well only lead to a further debt burden as they must pay off the “negative equity” on their old car, as well as a loan on a new one. But the unprecedentedly long loan terms point to a subset of buyers who are likely stretching themselves beyond what many would consider financially prudent.
The way I see it is this way; 1. There should be regulatory control regarding the finance and banking industry. This would mean a maximum duration of a loan would be established. 2. Personally I do cons!der 60 months for a new vehicle loan term and 36 months for a used vehicle loan. The used vehicle can't be older than 5 years. 3. This includes any form of loan for a personal vehicle. 4. Leasing should also be regulated. A new vehicle shouldn't be able to be leased for more than 3 years with a new vehicle for personal use and a used vehicle should never be allowed to be leased for personal use. 5. Business use of vehicles should abide by a different set of regulations governing private and business use. This would reduce the and protect all consumers buying vehicles. I do realise some will say it is the responsibility of the person and the banking/finance institution. But, as was witnessed many can be hurt by irresponsible lending. So the consumer must be protected.
These stories of negative equity and car-hopping remind of my first impressions in a public school after Catholic (no, our priests weren't boffing altar boys, just ethnic cleaning ladies). Sodom and Gomorrah with ADHD . There's clearly some congruence between Flybrain's people and Crabspirit's but I can't yet articulate it. I believe in buying as close to base model as possible and keeping it at least 6 years. Or used and damn near forever if it's a pickup/van.
Every high school should be required to teach a "Financial Reality" class and make it a requirement for graduation. How to establish and take care of your credit, living within your means, the importance of a viable trade/college degree, how compound interest works, etc. Would be a lot more valuable than fine art history or French class. Living above your means and over extending yourself financially alwasys ends the same. In simple terms, you have to make more or spend less. You can't escape financial gravity, no matter how hard you try.
If you can use someone else's money for 84 at 0% why wouldn't you? I think the whole thing about what other people should do with their money is kinda sick. If I can afford it and I am not in your pockets for the money pardon my french but piss off.