By on December 2, 2015

Signing his life and wallet away for the next six or so years with a long-term auto loan agreement

In news that will shock precisely no one, the current car blitz is partially fueled by longer loan rates, higher monthly payments and an increasing prevalence to finance our new cars from the automaker themselves — when we’re not renting it from them in the first place.

Experian released Wednesday its data on third-quarter sales and financing and found, on average, that borrowers’ credit scores were at the lowest level since before 2008. According to the credit agency, car buyers had an average credit score of 710 when they financed their car — which happens in 86.6 percent of car transactions, an all-time high.

Buyers opted for longer loans too. According to the data, new car loans longer than six years increased to 27.5 percent for the third quarter, up 17.1 percent from the same period last year. Loans between five and six years accounted for 44 percent of new vehicle financing.

The agency also reported that leasing is becoming more popular for new buyers. More than 1 in 4 buyers opts to lease new vehicles instead of purchasing them, Experian noted. On average, lessees saved $84 per month than buyers. A new car buyer, on average, is paying a $482 monthly nut.

“While consumers can save an average of $84 per month by leasing rather than taking out a loan on a new vehicle, they should make sure leasing fits their lifestyle. Oftentimes there are mileage caps and other considerations that consumers should familiarize themselves with before entering into a leasing agreement,” Melinda Zabritski, Experian’s senior director of automotive finance, said in a statement.

And buyers aren’t necessarily leaving the showroom for money either. Captive financing, which is funded through an automaker-owned bank, scripted more than half of new-car loans in the third quarter of 2015. That represents a nearly 15 percent jump from the same period four years ago.

“Captive lending has made a comeback since suffering a steep drop-off caused by declining new sales and lender-type shifts during the recession,” Zabritski continued. “This is good news for manufacturers, as their captive finance companies often provide an additional source of revenue as well as a strong pipeline to credit for their dealer networks.”

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98 Comments on “Car Loans Get Longer, Credit Scores Get Lower, and We’re More Reliant on Automakers for Money and Cars Now...”


  • avatar
    28-Cars-Later

    MAN: Where do I sign?
    SALESMAN: Right there and initial below… but once you do I own your soul! Muhahaha.
    MAN: Do I still get free oil changes for as long as I own the vehicle?
    SALESMAN: Of course with a free blinker fluid refill and 40% off stem lube.
    MAN: Its a deal!

  • avatar
    RideHeight

    That photo exudes verisimilitude because who but a loser schmuck lets the salesman slap a scratchy-ass, possibly metal, clipboard onto the paint of the car he’s buying?

  • avatar
    sirwired

    Buyers are also keeping their cars longer (both new-car-buyers and used-car-buyers) and the cars themselves are lasting longer. So these changes represent little aggregate risk to either consumers or lenders. (That’s not to say that individual consumers (or lenders) won’t make stupid choices and end up upside-down and miserable, just that overall, the risk to both consumers and the auto credit industry is low.)

    “While consumers can save an average of $84 per month by leasing rather than taking out a loan on a new vehicle, they should make sure leasing fits their lifestyle. Oftentimes there are mileage caps and other considerations that consumers should familiarize themselves with before entering into a leasing agreement,”

    Spoken like somebody who works for banks. Yes, lessees may have payments that are $84 a month less (that is very different from “saving” $84/mo), but the buyers have the advantage that at the end of their financing term THEY OWN THE CAR. For me, that’s a much bigger deal than mileage caps and I know that (for me) owning the car in the end is worth the additional $2.75 a day. Leasing is great for some certain limited circumstances, but on the whole it’s a device by banks/dealers/automakers to keep you on the proverbial car-payment treadmill.

    • 0 avatar
      indi500fan

      In my view the only desirable lease deals are the heavily subsidized ones where they (GM, I’m talking about you) are trying to move the metal.

      Caddys used to have some screaming lease deals, S10 pickups, misc Pontiacs, etc.

      My daughter has a 3 yr Cruze deal for around $159/mo with nothing down.

      • 0 avatar
        sirwired

        Really, a lease is no different from a loan, except you are only financing a pre-determined portion of the car’s value.

        If you plan on trading in the car at the end of the lease, it can be really great; you know exactly what the trade-in value will be at the end of the financing term; you are not subject to the vagaries of the used-car market.

        If you are a “keep the car for a long time” sort of person, the lease deals are not usually better than the purchase-finance deals offered at the same time.

        • 0 avatar

          Please educate me if I’m wrong, but aren’t leased cars loaded with a bunch of insufferable restrictions?

          #1 is mileage. I knew of people who bumped against the upper mileage limit on leases, as well as lower (although possibly I misunderstood that tale of woe, but they had to drive more to gain miles)

          #2 is modifications. My car is modified and at this point it’ll take me a week to undo everything before selling. Fortunately I kept all the take-off parts and I can do it, theoretically at least.

          #3 is the unforseen. I heard stories about lease termination that were absolutely insane, and not just when the signatory deceased. Is it all untrue?

          • 0 avatar
            Scoutdude

            #1 it certainly can be a deal breaker or an ugly surprise come turn in time. The really cheap lease deals you see are often very low mile leases like 10K per year. The overage fees can be pretty hefty. Of course you can buy the extra miles as part of your monthly payment so IE not that super low advertised price.

            #2 if you do return it stock then it doesn’t make a difference.

            #3 there usually are early termination fees. On the other hand do a 10% down 60 or more month loan and you’ll probably be upside down for at least 2 maybe 3 or more years depending on resale value and your interest rate.

    • 0 avatar
      SaulTigh

      I just leased my first car ever precisely because I DIDN’T want to own the car. I think I may never want to OWN another car ever again. I’ve seen how amazing leasing from the right dealership/brand can be.

      Everyone else can enjoy their paid for hoopties while I sip chilled spring water and eat complementary roasted almonds in the lobby of my dealership. Why am I there? They’re washing the car for me. I. Don’t. Have. To. Wash. It. — Ever. I don’t have to replace the wipers…they’ll do it. I don’t have to add oil to the engine or air to the tires…they’ll do it. If it breaks, they’ll fix it. All while I sip the water and eat the complementary almonds.

      I feel like I’ve discovered the greatest secret known to man.

      • 0 avatar
        DenverMike

        Congrats! It’s no different than shelter. Some prefer to rent for their entire life. Depends on your situation. Owning a home can be a terrible deal too!

      • 0 avatar
        dwford

        True. Some people take sick pride in driving a 15 year old paid for car that they milk along with occasional repairs. Meanwhile, they suffer the odd breakdown, tattered upholstery, dents and dings, outdated safety features etc.

        I’d much rather have a consistent payment (buying or leasing) and have a new, reliable vehicle thats up to date, than have a beater.

        • 0 avatar
          sproc

          @dwford: The person milking a 15 year old car is an outlier. More important to me and many here is the well-maintained 7-10 year old car that’s still extremely reliable, fun to drive, and long ago paid off. Meanwhile, all that time without paying a bank, I’m already buying my next car by making those payments to myself.

          I can appreciate those folks who want a new car every 3 years, I really do. But it’s an indulgence, not a necessity, and it’s sad to see so many make poor decisions they can’t really afford without sacrificing all or some of their financial security.

          • 0 avatar
            dwford

            In an ideal world that first car would be paid for with cash, so that the cycle of saving for the next car can begin, instead of using credit for that first purchase. Most people don’t seem to be able to make that happen.

          • 0 avatar
            threeer

            Then my son is an extreme outlier! LOL…he currently continues to drive his 1997 Toyota Tercel (now with 230k on it…original engine, trans, etc…). Can he afford something else? Yes. This is a timely article as he just called me the other day to discuss his first car purchase now that he’s two years removed from graduating from the Air Force Academy and on his own. By the end of next month, he’ll have $20k stashed away to pay for a car outright. I’m rather proud of him for having the discipline to put that much away while still enjoying/having a life. He could have done like so many other college grads do and go out and finance a hot new car, but he didn’t. Heck, at 24 years old, I did…financed my first car before I even reported for the first day of work! He shares rental costs wherever he is stationed with other Air Force buddies and keeps his expenses down. He’ll buy his next car (he really wants a truck) and will likely keep it until the wheels fall off, given his track record with the Tercel. Until he buys a house, he intends on avoiding payments like some communicable disease. I am confident that when he’s my age (45) he’ll be in far, far better shape financially than I have ever been in. I’d love a new (or newer) car to replace my 12 year old Lancer, but it ain’t in the cards as I don’t have $20k parked in an account but I also don’t want to shell out for another monthly payment right now. My wife and I have one car paid for and one car we’re paying on, so (likely) until the other car moves over to the “paid for” category, I’ll milk the Lancer a while longer.

        • 0 avatar
          Lorenzo

          Hey! Some people don’t want those additional government mandated safety features, like tire pressure monitoring. Some “features” are now impossible to get, like the split bench front seat and column shift in my 2005 LeSabre, and the fact I can see out the back window, and the people I transport in the back seat have ample head room. If you pick the right car, the upholstery and paint will hold up and with decent maintenance the repairs to interior, exterior, and mechanicals will be few. An enthusiast’s car and a daily driver are two different animals.

      • 0 avatar
        pragmatist

        Except you NEVER get to experience life without car payments. That is the real reward.

    • 0 avatar
      johnny_5.0

      There is a non-insignificant portion of the buying public living well within their means who lease just because they want a new car every 3 years. Some cars are terrible to lease because the residuals suck, but if you have no intention of keeping the thing beyond 36 months and choose something that leases well the logic is pretty obvious. Save money every month (sometimes way more than the average $84/month referenced above) and don’t worry about being upside down and losing your ass getting into something new in 3 years. You can also usually get out of your current lease and into another one early from the same manufacturer so your typical 3 year lease term ends up being something like 30 months. Waiving some reasonable overage is also fairly common among luxury makes just to keep your payments coming their way on your next lease.

      There are occasional screaming lease deals which would make sense for a lot of people. But outside of those, in general don’t lease to save money or hit some budget. If you are that worried about a couple of hundred dollars a month then you probably shouldn’t be leasing *or* buying that car you are looking at. Lease because you always want to be in a new car and it makes financial or logistical sense to do so. That guy who leased a 2013 Audi S7 for $0 down and over a grand a month probably isn’t financially retarded, he just knows he wants to be in a 2016 S7 soon.

      The same obvious logic applies to buying. If you plan to keep it for a long time don’t lease it. Don’t lease something with terrible residuals. If you are into tuning beyond an ECU flash and some cheap(ish) bolt-ons then leasing probably isn’t the way to go. If you put a ton of miles on your cars don’t lease them. Yadda yadda blah blah.

      Tl;dr. Leasing can be a terrible idea depending on the circumstances. But buying doesn’t always make sense either.

      • 0 avatar
        DeadWeight

        Leasing is typically terrible as it’s a way for people to use a more expensive car short term, at the bad trade-off expense of having no vehicle whatsoever at the end of a fixed period of time (typically 24 to 36 months).

        At the new average of $388 per month, assuming $2,800 down, a 36 month rent (lease) of a vehicle is going to cost a consumer $16,768 every 3 years, or $70,680 every decade for the use of the same car (equivalent terms) in todays dollars, which does not include fuel, insurance, registration, maintenance, etc.

        So, it’s fair to say that the average perpetual renter/lessee of a vehicle will pay $100,000 in todays dollars each decade in throwaway cash to rent a vehicle, with no ownership interest to show for any of that money.

        Vehicles are horribly expensive; leasing is even worse.

        • 0 avatar
          sportyaccordy

          Nice try. Article says leasers have lower payments. So that’s $84*120 = $10,080 saved right there. Then you have to factor in maintenance- once the car is out of their free zone that is on you too. Every car will need fuel, insurance and maintenance, so that’s a wash- though the leaser will most likely not have to pay for maintenance, so there go more savings. And financing a car is just a different form of renting. Someone 2 years into a loan or a lease can still have their car taken away by the bank.

          So as usual your absolute proclamations aren’t as simple as your mind works. Every method of car buying has pros and cons. With rates as low as they are financing/leasing are great deals right now. The problem will come when rates go up and pull the rug out from under it. But in the mean time inflation is low and money is cheap…. to not take advantage of that is horrible.

          • 0 avatar
            NotFast

            Nice reply Sportyaccord! Wish we could block commenters here, as DW has nothing worth reading…

          • 0 avatar
            sportyaccordy

            When attention is the goal and it can’t be attained through good, insightful posting, shock and awe is the next best thing. He got a taste of the limelight with his anti-Alpha campaign and has been carpet bombing TTAC with garbage in search of his next big break. He needs a time out.

          • 0 avatar
            DeadWeight

            “sporty”accord is the one employing simplistic logic; I didn’t even mention interest/money factor costs, so just add that to the list.

            My numbers, if anything, are too LOW/CONSERVATIVE.

            People like “sporty”accord are loved by the automakers, finance firms, auto dealers and other cogs in the automotive retail & finance business, as the more that think his/her way, their lives become far more easy & profitable.

  • avatar
    indi500fan

    So is this a good time to get into the repo business? Get my cousin (well actually nephew now) Vinnie a tilt bed hauler and make some dough?

    • 0 avatar
      Lorenzo

      Not really. A 710 credit score is actually good, but that’s the average. There must be people substantially below that, but they’ll try hardest not to lose their transportation. Life gets a lot tougher when you can’t move around. Besides, “repo man” is not exactly an exalted profession, though a necessary one. I’d rather be a trash collector – at least I can call myself a “sanitary engineer”, and it’s a lot safer than dealing with angry repo-ees.

  • avatar
    SCE to AUX

    What you said, and I’ll add a few more:

    1. The dumbing-down of the US population, who nod appreciatively when the four-square comes back with the monthly payment they can afford.

    2. In addition to cars lasting longer, people are less capable of servicing their own cars. So when they’re faced with a failure which could have been avoided with some preventative maintenance, they bail on the car and go shopping for a new one.

    3. Decreased standard of living, even with both partners working. Some of this is due to having an unrealistic list of ‘needs’, and some of this is due to actual costs outpacing income.

    Side note: The only lease I’ve had was for my former Leaf, whose battery (and hence future value) I didn’t trust. It was a good decision in that I had a nice 3-year experience with it, but got to walk away from an exceptionally-depreciated car at the end.

    • 0 avatar
      SCE to AUX

      This was intended as a reply to sirwired, and now the edit option is missing. Computers…

    • 0 avatar
      sirwired

      1) The four-square is hardly new; that trick goes back about as far as auto loans do. I don’t think it represents any kind of new trend in “dumbed-down” consumers.

      2) Really, the portion of the population that buy new (quickly-depreciating) cars and work on their own cars hasn’t been very high for quite some time. The fact that cars NEED far less maintenance than they used to (and are more tolerant of lackadaisical maintenance) kind of mostly cancels the inability to work on them out. This is borne out with the statistics, which say that people are keeping their cars longer than ever, suggesting that the scenario of people dumping a late-model car at the first sign of repair doesn’t really happen that often.

      3) Can’t argue with the idea that middle-class wages haven’t kept pace with the cost of living. I guess you can say we are pretty lucky that cars have gotten so much longer-lasting, since we can’t afford to buy one nearly as often.

      Sounds like with your Leaf, nobody else trusted the used battery life either.

    • 0 avatar
      dantes_inferno

      > 2. In addition to cars lasting longer, people are less capable of servicing their own cars

      People are more capable of operating their latest electronic gadget than they are of servicing (much less driving) their own cars.

      • 0 avatar
        pragmatist

        The electronic stuff also adds greatly to repair costs as these cars age. If you hang around user forums you realize how many expensive repairs are replacing parts that DON’T EXIST in older cars.

        Plenty of owners face the perpetual error light problem, where error codes and limp modes keep coming back even after expensive repairs.

        By the time these electronic wonders are ten or fifteen years old it will be hell. Do you realize how much it costs to replace a touch screen? And how long they (don’t) last?

        • 0 avatar
          ufomike

          There is nothing inherently unreliable about touch screens. I have had touch screens installed in various locations that are much harsher than even the worse kept car interior for over 10 years and they have not failed. The problem is with manufacturers that keep giving us touch screens produced by places with horrible QC. It is really not a problem to install a high quality touch screen in your car that will outlive your engine and transmission.

  • avatar
    PentastarPride

    It’s not just auto loans where terms are longer. 50-year mortgages are quickly becoming the norm. People earning less than $100k in annual income are now able to “afford” the $3-400k McMansion.

    It’s probable that they will never own it: Buy the house at age 30 and you’re 80 when it’s paid off. That’s not counting the very probable event of taking out an equity loan or a reverse mortgage. With the volatility in real estate, selling the house may reset the clock. Very few people will truly own a house in this lifetime.

    My 2013 200 is paid in full, and was bought used with less than 20k miles–still virtually new, sans the depreciation hit. I have been paying myself a car payment since my first job in high school, which was almost nine years ago. As time went on, and I had more substantial paychecks, I paid more into this fund. Right now it’s $350/month. All mine. Haven’t paid a cent towards an auto loan ever since I bought my ’97 Concorde, my first car.

    I’ll never have a car loan, and my mortgage is 20 years.

    • 0 avatar
      matador

      I don’t know why nobody else does this. I’ve been stocking away $300 a month in the “Replace the 1995 LeSabre someday” fund.

      Buying items that you can afford. Sadly, it’s a lost concept….

      • 0 avatar
        redav

        “Buying items that you can afford. Sadly, it’s a lost concept”

        I hear the lamentations that new cars are too expensive, that the average new car costs $30k+, and that’s just too high compared to the average wage, that loans are getting longer, etc.

        What they fail to mention is that there are plenty of perfectly great new cars available for well less than that. They don’t mention that the availability of perfectly great used cars is better than it’s ever been. When people pay too much for a car, almost always they choose too much car as there are cheaper options that meet their needs. After all, cars aren’t like houses where to live in certain areas, you get stuck paying for it.

      • 0 avatar
        Lorenzo

        That ’95 LeSabre has ten years of useful life left, at least. When you get something newer, you’ll miss it more than you’ll ever know. I like my 2005 LeSabre that I bought last year, but I miss the ’95 Altima I sold to a mechanic. He had some bodywork done and gave it a paint job and new interior, and replaced the struts and tires, and assorted engine parts, and it runs and rides and looks like it did when I bought it used in ’96. I miss the size and maneuverability the most, but I bought a then-nine year old car because newer models had electronics I didn’t want and didn’t have things I DID want, like outward visibility and rear head room with comfortable seats for back seat passengers.

    • 0 avatar
      sirwired

      50-year mortgages are not “becoming the norm”; most banks do not even offer them, and even among those that do, 400k would be co side red well out of reach.

      • 0 avatar
        DeadWeight

        Most Americans are dumb animals who will take as much credit/debt rope as offered to them by which they’ll ultimately use to hang themselves.

        • 0 avatar
          gearhead77

          Because there is no “mandatory” education on finances in school here ( or anywhere?). I suppose that’s an “you learn it at home” thing, but mostly it’s just not done. I’m not talking economics, but just basic household finances.

          My folks are typical spender boomers, so I saw(and still see) how not to manage money from them. My Dad was also promised a pension that he only gets part of due to his company going bankrupt (twice). For many older blue collar types like my Dad, that happened at the end of their working lives, money not easily replaced.

          I learned a lot about money from my father in law, who is frugal but also in great financial shape. Finances for Dummies was a big help too. And by being young, stupid and lazy. I had well over 20k in debt for credit cards at one point, plus some small student loans, all paid off.

    • 0 avatar
      highdesertcat

      “I’ll never have a car loan, and my mortgage is 20 years.”

      That would be the ideal, but not everyone is able to do that. For some, “deferring” going into debt is what is of paramount importance.

      So this is another reason why my son and I gave his daughter our two 2012 Grand Cherokees, when she got married this past June. They needed wheels and did not need to go in debt for it.

      If she and her husband can squeeze a few more years of use out of these two “old and high-mileage” cars, it allows them to position themselves better for buying the necessities of married life when going into debt is the only way to get there.

      And that will come soon enough. No sense in starting off behind the financial eight-ball if there is a way to work around it.

      • 0 avatar
        redav

        Debt is a tool, and it has its uses.

        I currently have a car loan, but it’s a low interest rate (comparable to what I make on savings). I could have paid cash, but then I would have less flexibility because my savings would be mostly tied up in the car. The actual cost of that loan (comparing interest paid to lost earned interest) works out to ~$55 over the 3 yr loan. Am I willing to pay under $100 for free access to that money during that time? In this case, yes. If the price of the car was a small percentage of my savings, then no, I wouldn’t.

        Another way of describing it is considering what I would do if an emergency occurred that cost me enough that it would wipe out my savings. I would be forced to borrow that money. The car loan reduces the chance of this scenario (since my savings is not mostly depleted). Also, I know I would not be able to borrow that money at as cheap a rate as the car loan. Therefore, paying the interest on the car loan is effectively insurance against such an event. Again, the low real cost makes it worthwhile. If I had more savings or if the car loan rate was higher, then things would be different.

        • 0 avatar
          highdesertcat

          So how much money would you save on car insurance every year if you did not have to carry full-coverage on that financed car to protect the lender?

          My guess is it would be a substantial amount. It is for me, and I’m with USAA. I carry only Mandatory Liability on all my vehicles, new and used.

          • 0 avatar
            DeadWeight

            If you look at your declaration sheet, collision typically represents an average of 68% of your total premium, while liability, on average, represents less than 12%.

      • 0 avatar
        DeeDub

        Not going into debt is much easier when your cars are given to you for free.

        • 0 avatar
          highdesertcat

          DeeDub, going into debt is a given. Unavoidable.

          Everyone has to take the plunge at some time during their lives unless they’re independently wealthy. So, better later than sooner.

          Many parents and grandparents these days have taken a lesson from their own struggles during their youth to cushion their children and grandchildren against the inevitable.

          They’re called hand-me-downs, but eventually even those need to be replaced. And that’s where going into debt comes in, unless someone has prudently used that buffer-time to save up for a replacement.

          Buying a home and student-debt are a little different, but this is not the venue to address the differences for that indebtedness.

    • 0 avatar
      brettc

      I have a car loan but it’s almost paid off and I don’t intend to have another one for a while. Plus it’s on a TDI, so even if I wanted to dump the car I’d have an awful time doing so.

      I had no idea 50 year mortgages were a thing. That makes me sad. We had a 30 year fixed but I was able to do a modification through our bank and changed it to a 15 year term with a lower rate but a slightly higher payment. We’re paying the principal down much faster and will save hundreds of thousands in interest compared to the 30 year term. The wife wants to move to something nicer, but I’d rather stay and get it paid off and have a wad of cash when we do go to sell.

      As my dad told me, money doesn’t grow on trees. Amazing how many people can’t comprehend that simple concept.

  • avatar

    This economy is built around deferred payments. People would sign up for a 1000 year Mortgage if it would get them into their “dream home”.

    There’s a huge moral hazard in NINJA loans and SUBPRIME loans…but the interest on these bad loans is the only thing keeping many of these businesses alive.

    • 0 avatar
      mikeg216

      This isn’t 2006 there are no more ninja loans.. Subprime doesn’t exist… No 50 year mortgages either. Statisticly speaking the mortgage loans with the highest rate of default is the 3% down fha purchase loan. 13%

    • 0 avatar
      John

      “People would sign up for a 1000 year Mortgage if it would get them into their “dream home”.”

      btsreview for the ttac quote of the year.

      There’s a blogging fellow who calls himself “Mr. Money Mustache” who has a different take on personal finance. I like him.

  • avatar

    There is a certain group of buyer who pretty much has figured $250/300/350/etc per month will be spent on a car payment and budget themselves (or attempt to) accordingly.

    There’s another group that figures they’re going to have to spent $1000-3000 on a car every three years or so when their old one bites the dust and budgets for that.

    Then there’s the ‘get-me-done.’ These folks used to come in with their worthless trade with no A/C that they own outright and $500 and will take just about anything, just “Get me done.” Where I used to deal a lot in subprime, these people started getting picky and demanding, wanting five year-old F-150 Lariats, Ram Quad Cabs, Expeditions, Escalades, BMWs, and the like…still with their basic lack of qualifications. These are the high-repo/high-default people who necessitate and feed to 30.03%-APR-state-cap subprime finance business.

  • avatar
    mchan1

    Depends on the person’s needs or finances.

    Tried a lease once and that’s only when I was running my own business so the lease was a business expense.

    People generally lease when they can’t afford a newer car or want to flip cars every few years.

    You buy a car when you’re going to keep it for a long time.
    Nothing wrong with buying new and keeping it for ~10 years as there’s lots of people who keep their cars for that long. It’s simpler knowing that the car was fresh and new when you bought it instead of buying a used car and pray that the former owner did Not abuse it in any way.

    With used cars, it’s basically luck when it comes to reliability and durability, esp. in today’s world when fewer people know how to literally fix their own vehicles!

    If you can afford a luxury car, then you can afford to pay the higher related repairs bills that may come later. The average person just wants a reliable and durable car that’ll last years without much repairs and good fuel economy. Car prices have gone up significantly, unlike wages which are basically stagnant, so one can’t really afford newer years ever few years esp. if one plans to own a home.

  • avatar
    CaseyLE82

    I purchased my 2006 Fusion for cash 3 years ago. It has 144,000 miles on it. Yes, it’s broken down a few times and cost me some money, and yes it leaks power steering fluid like a sieve, it’s mine and it’s paid off.

    Yes, I hit a post at the Sam’s Club gas station a few months ago and didn’t get it fixed.

    But, it’s MINE.

    I will hold on to it until I simply can’t anymore. I’m hoping for 4 more years and 70,000 more miles.

    • 0 avatar
      tresmonos

      That leaky powersteering fluid could possibly be a line. Be very wary. Ford used to use Coupled Products on some of their vehicle lines. If it isn’t Cooper Standard, Mark IV/FRS (Fluid Routing Systems) or Yokohama, it is a garbage line and should be replaced when convenient.

      Coupled products didn’t crimp or ‘swage’ their couplings well and caused a lot of split lines. They also didn’t EOL pressure check to Ford spec as well (if I’m to believe what I’ve been told).

  • avatar
    DeadWeight

    DEBT FREE, B!TCHES!

    There are few luxuries in life that can compare to having ample resources while being debt free.

    Not only will “Keeping up with the Jones\'” ingrained, American cultural mindset keep most Americans on a stress-inducing, permanent hamster wheel of serfdom & misery, forcing them to take jobs they hate and do other self-denigrating things, but the Paul Krugman “Debt Is Good; Binge on Useless Things Having No or Marginal Value While Imprisoning Yourself” lifestyle will cause you to have physical and psychological ailments, ultimately, as well.

    • 0 avatar
      CaseyLE82

      I wish I could shake everyone in America and just completely change their mindset about debt.

      I have a good friend who is a single mom of 2 and a teacher. She had a 2013 Fusion and then her boyfriend left her suddenly so she traded in the Fusion for a 2015 Escape. Her reason? There was too much “Jeremy” in that car. Seriously?

      A car is an appliance. It gets you from point A to point B. I really like cars, and I like tinkering my my 10 year old Ford and my husband’s 11 year old Ford…I hope that I never end up in a situation where I have to sign up for a car payment.

      • 0 avatar
        Drzhivago138

        Her boyfriend “left” suddenly, and she had to abruptly get rid of the car because there was “too much” of him in it…

        Murder jokes aside, to play devil’s advocate: It might have been really bad, as in devastating, as in you never want to be reminded of that person ever again.

    • 0 avatar
      Cactuar

      I agree, nothing compares. We are debt free and finished our 12-month emergency fund this month! There is no material good in the world that I’d be willing to trade for the freedom we are enjoying right now. After 2.5 years of sacrifices to get where we are, seeing these monthly payments almost makes me throw up. I don’t know how people do it…

  • avatar
    Cactuar

    Boy am I glad I opted for paying CASH for our used van when reading this. 482$ a month!! That’s a *lot* of money.

    • 0 avatar
      DeadWeight

      Your average American is an eternal debt slave caring only about their monthly payment whether a vehicle, mortgage, etc., hence the eternal debt slave status, until they die, leaving their heirs in debt.

      Two of my favorite commercials are the “loan service to help pay for funeral” and the recent other one where the millennial chick is checking her FICO score on her iPhone and it is above 650 or something, indicating green as in go to go put and get a new vehicle for $350/month.

      • 0 avatar
        Cactuar

        Haha, I will search for the FICO commercial on youtube.

        Edit: I found some amazing ones named “credit swagger”. You’re a superstar for playing footsie with the banks!

      • 0 avatar
        redav

        Having a good FICO score is important. Knowing your FICO score is nearly worthless.

        If you need a loan, your score is what it is, regardless of whether you know it. Knowing your score doesn’t change whether you will get the loan or the rate you will pay.

        Knowing your score only protects you from the case where the loan officer lies to you.

        • 0 avatar
          VoGo

          Knowing your FICO gives you the opportunity to correct mistakes on it. Lenders often punish the innocent for having the same name as someone who didn’t pay off their debts.

  • avatar
    Big Al from Oz

    I wonder if this is all going to end badly?

    How much longer before vehicle sales start slipping?

    If loans are being pushed out to attract the consumer with less resources to purchase, we must nearing the end of this “honeymoon” period in vehicle sales.

  • avatar
    Jerome10

    I make a decent living as a single guy, enough to save a decent percent a month, take a trip or two a year, with a modest home and a 7 year old car. I also know I’m exceptionally frugal in my thinking.

    But I see bad news all over here. A huge swath of the population is 1 economic downturn away from total financial ruin, housing, cars, health care. I don’t care how long cars last or how low the monthly payment is, this is a dangerous game, and for the automakers and banks.

    People can do what they want with their money, but I don’t wanna be on the hook for bailouts when it happens.

    But really I feel too few people even learn basic finance and math. Everyone shops a monthly payment. Dead Weight is spot on. Cars are horribly expensive and leasing or purchasing every couple years of a new car is financially dumb when you lose your job and can’t make the next payment. People really need to look at the interest costs and understand it isn’t $159/month… It’s $70k per decade. And 10k or whatever in interest.

    It particularly irks me in housing. It simply drives housing costs to absurd levels when people buy on payment. Makes it more expensive for everyone. Then the downturn happens and boom, people are upside down hundreds of thousands.

    Again, your money, and we all have our financial weaknesses but the consequences should be the borrower and the lender when it goes south. And when I read this article and see the lack of strong jobs and income growth, I just see nothing good here.

    Hopefully a lot of great, cheap cars will flood the market. Cash buyers will find steals everywhere.

  • avatar
    dwford

    The big problem with the longer loans is that so many people don’t do their due diligence up front, and end up buying a vehicle that doesn’t meet their needs. 2 years into a 6 year loan is not the time to figure out that you made a mistake, especially with so many people putting minimal cash down. Also, when a person with bad credit is taking out a 72 month loan at 10-12-15% interest, they are making a minimal dent in the principal every month, and could end up paying $10k interest expense over the course of the loan. THAT’S how people get into financial trouble with these loans.

    Full disclosure: I took a 75 month loan on my Sierra, and I refinanced substantial negative equity, but I have such a low interest rate that the vast majority of my monthly payment is principal, so I am catching up quickly. Buying a vehicle that holds it’s value helps too.

  • avatar
    sportyaccordy

    Debt, like anything, is OK if you know what you are doing. The “drive it into the ground” folks always love to downplay the costs of repairs and the like, and don’t realize that rates are so cheap right now that if you have good credit and play the game well debt can be a great tool. I mean my CC company pays me to spend money. Auto loan rates are down in the low 2 percent range. Total interest on a 5 year loan at that rate will be about 5% of the loan value. If you put that cash into an investment that got you back a measly 1% annual return you would get that $$$ back. Mortgages are not far off. And there are plenty of deals like zero percent financing and subsidized leases that sweeten the pot even further.

    People talk about debt like it’s the 80s and interest rates are in the double digits. Rates are low, inflation is low. If you have good credit there is zero reason to tie up your cash.

    And if someone wants to lease a luxury car, so what? Brand new luxury cars are always a bad deal financially, whether or not you can afford them. But not everyone wants to spend their one life eating ramen and canned tuna, living in a trailer and driving a 1996 Tercel until the wheels literally fall off. Financial independence and prudence is critical but at the same time you can’t take it with you.

    • 0 avatar
      ajla

      Have you seen tuna prices lately???

    • 0 avatar
      IHateCars

      Sportyaccordy…Thank you….well said.
      The “…if you can’t pay with cash, then you shouldn’t buy it” comments were getting tiring. Credit, like anything else, can be a great tool, if you know how to use it. I’d much rather take advantage of 1% financing rates for 4 – 5 years on a new car, and put my money into real estate or other investments. I love having rental properties that are paying for themselves.

      • 0 avatar
        DeadWeight

        The “1% to 2%” interest rates you cite are more than offset by higher transaction prices, as everyone is focused on “my monthly payment will be?”

        IOW, if interest rates were higher, transaction prices would be lower.

        Just to repeat, for simple-minded people like you and “sporty”accord, we would not see average new car transaction prices breaking 35k in the U.S. now if interest rates were at historically normal rates.

        There’s no free lunch contrary to the logic of simpletons.

        • 0 avatar
          28-Cars-Later

          Pffft you imply there is inflation.

          • 0 avatar
            DeadWeight

            (Archer voiceover) “He said OBVIOUSLY SARCASTICALLY.” (for slow-wits like sportyaccord as the banking/financial sector continues to get subsidized by savers).

        • 0 avatar
          dal20402

          I can’t do anything about transaction prices. (And in any case I think the problem is much worse for houses than cars — cheap financing is why my modest condo cost within a whisker of half a million dollars.) But I very much can sign the dotted line for 0% financing when the manufacturer offers it and enjoy my money for longer. I’m not going to sign up to solve a collective action problem by myself.

          • 0 avatar
            DeadWeight

            Easy credit and artificially/historically low interest rates are a primary driver of the latest round of housing/condo inflation.

            That’s the point.

            I work for a REIT, so I see the effects in real time in things such as office, retail/connercial, and now, industrial/warehouse asset inflation.

            Unfortunately for you and others similarly situated, in order to reap the harvest of that condo appreciation you’ve seen, you’d have to sell your condo and move somewhere far away, having far lower housing prices, which is probably not possible absent a change of employer, school for the children, moving away from friends and relatives, etc. – so there’s been no practical benefit for most as replacement cost of similarly situated/located property nets you nothing.

            And that’s how bubbles work.

            (They’re great for banks and financial institutions that previously had tens or hundreds of billions of dollars worth of sinking assets that they have no personal attachment too, though, so thanks Bernanke, Yellen, Draghi and Kuroda!).

          • 0 avatar
            dal20402

            If this is a bubble, then it’s a long-lasting one. I’ll take my chances with it, and hope to cash out once jobs and kids’ schools are no longer a factor.

          • 0 avatar
            DeadWeight

            It’s a bubble. I’m involved in multiple commercial deals now where the numbers can’t possibly work, but they’re non-recourse bank or PE (l.p.) loans, so it’s OPM, and the drivers of the deals will make money at the inception/origination of the financing, and be free of the fallout.

            Having said that, I genuinely hope things work out for you personally, and to be completely objective, the metro Seattle/Redmond/Bellevue areas fared FAR better property wise than almost any other areas of the nation during the 2008-2010 meltdown.

          • 0 avatar
            Big Al from Oz

            I’d have to say I agree with DW on this.

            I don’t know if I would call it a bubble as such, like the real estate market.

            Real Estate is far less a consumable as the auto.

            I do think the US is nearing it’s zenith with vehicle sales and you will see a downturn soon. I wouldn’t predict when this will occur, but it will be within a couple of years.

            The way these long term loans are given with less security suggests this. Also, the downturn in new vehicles sales after the GFC must be nearly met.

  • avatar
    gearhead77

    I think leasing is a great option as long as you know what you’re getting into. In my house, we try to keep one on lease and one bought. Right now we have an Odyssey EXL on lease and our Mazda 5 is paid for and a AAA Gold membership for that just in case.

    We drive about the same miles annually on both cars, about 10k, so a 12k lease works for us. Actually, the Mazda spends many days in the airport lot, so it only sees about 5-6k annually.

    To me, it’s cheap insurance to have one car on lease. The payment is lower, so less money is tied up in the car payment. One car is always newer and under warranty, so only maintenance money and gas comes out of pocket. For the same “price” per month as a 4 or 5 year old used Odyssey with 50-70k on the clock, we have a new one with little worry of the “glass transmission” issues. Plus the safety and feature advancements that come with a new car. And, it sort of satisfies my car buying itch.

    We have perfect credit, so we always get a low rate or qualify for the best lease. If that wasn’t the case, it would be a different story. Leasing isn’t for every one, but it works for us. I’d rather lease with a low payment(and as little down as possible, preferably $0) than have a 72 month+ note. I’d have no problem taking out a long note to get a low interest rate, but I’d probably double up the payments if I could.

    It’s all about finding a balance. Do the math and figure it out what works for you.

    • 0 avatar
      Syke

      To me, leasing a car is worthwhile when you want to take a risk. Like switching over to an electric car. Which I’m seriously considering next year, as my daily commute works well in good weather on a 125cc scooter, but I’d like to keep getting the 70+mpg the scooter gives me with weather protection.

      As a two or three year experiment to see if an electric vehicle will actually work in my situation, leasing is fine. If it doesn’t work, dump it at the end and start over. If it does work, you can fine tune the situation before deciding to buy the current vehicle at the end of the lease, or go for a different one.

  • avatar
    ufomike

    I dont think this is a very accurate statistic. The last 2 cars that I bought I took out 5 year loans on. Its not because I am poor or cant manage my money. It is just the opposite, because it was more convenient for me to finance my cars than to move money from investments that yield more than the 4% or so that the bank charged me. The first car I paid in 4 months. The other car I paid off within 18 months. It is just that when you are in a dealership and are signing the paperwork, they offer you a 60 month loan. And as long as the interest rate is low on it and I intend to pay it off early anyway, then its mostly “yeah sure whatever i dont care”. I’d love to know what percentage of those 5 year loans are paid off early.

  • avatar
    gearhead77

    I’m fine with people buying on monthly payment, as long as they stick to a budget. You budget $350/month max and find something at or below that.

    But, and automakers/dealers/retail in general know this. So they advertise and put one or two cars on the lot that COULD be had for that price. But they sell quickly or no one wants them due to lack of options. So they have a bunch more that will be $400/month. It’s only an extra $50 a month. For some, that’s not much, for many, it’s more than they realize.

    And then that vehicle is advertised for 25 mpg but only gets 17mpg. Then gas goes up in price. And they start driving more. Now they’re way over $50 more per month. And that’s a minor example.

  • avatar
    Steven Lang

    Everyone has their own unique viewpoint when it comes to the finance/lease paradigm. I don’t believe in judging others either way. Certain auto enthusiasts and maintenance averse buyers are happier with leases. Other folks who are keepers instead of traders are more comfortable with a ‘buy and hold’ strategy.

    I live in a rust free area of the world (northwest Georgia) that is surprisingly friendly towards keeping an older vehicle. If I were near the Great Lakes and had some extreme type of advantage with leasing I would probably go that route. There are folks out there who can jump on a great lease and then take a healthy tax deduction. In fact, the Nissan LEAF and Chevy Volt are rolling embodiments of that idea.

    If you have the environment and the interest in becoming a keeper, do it. Life is a lot less stressful when you’re an owner instead of a debtor. But if a new car thrill every three years or so outweighs that potential stress, go with that. There isn’t much else to it.

    • 0 avatar
      dal20402

      As long as debt is manageable and budgeted I don’t see why it has to be stressful. My one remaining car loan is tiny compared to my income and causes me zero stress whatsoever.

      • 0 avatar
        Lorenzo

        In that case, unless you’re investing at a higher rate of return than you’re paying out, why owe at all? There’s truth in the old saying, “Neither a borrower nor lender be.”

        BTW, my brother-in-law said that to his 9 year old, and was asked, “Why are you talking like Yoda?”

        • 0 avatar
          dal20402

          Since I’m paying out 0% on my car loan, it’s not hard to earn a higher rate of return.

          • 0 avatar
            DeadWeight

            You’re being deceived.

            That 0% interest rate would be at least made up for, if not more than so, by higher cash incentives/lower purchase price, in a historically normal interest rate environment.

            Watch what happens when 0% interest rates amidst ZIRP world go away; manufacturer and dealer incentives will spike much higher (especially in the coming years with an inordinate number of off lease, low mileage vehicles flooding the dealer and wholesale lots).

          • 0 avatar
            dal20402

            Depends what you are buying. I bought during a glut of inventory, and got full cash incentives in addition to the 0%. Sometimes there are actually good deals out there, because sometimes manufacturers make mistakes, and providing super-cheap financing is a cost-effective way to fix them. Not everything is a con job, and there is no guarantee that further cash incentives offered instead of the 0% would have been as attractive a deal.

            Incidentally, I’m halfway convinced we’re in a new normal with respect to interest rates. The zero lower bound has proven illusory, both creditors and debtors have something to gain from super-low rates, there has been essentially no inflation in any asset class other than real property in select markets and college tuition, and I don’t see what force is going to cause central bankers to push rates back up 5 points.


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