By on April 7, 2020

Auto loan terms have been creeping up for as long as anyone can remember. Back in 1997, the average financing period on a new car was somewhere around 54 months. That crept up to over 60 months by 2004 and has only continued to climb. Over the past decade, the typical automotive loan term has ballooned by almost 30 percent. According to an analysis by Edmunds, the average financing period on a new vehicle sold in the United States surpassed 70 months in March of 2020.

While automakers’ recent introduction of loans extending up to 7 years (especially now that COVID-19 is hampering sales) has exacerbated the issue, we were already sitting on a 69-month average in October of 2019. Why would someone voluntarily agree to such a lengthy agreement? They may not have much of an alternative due to similar growth in vehicle transaction prices. 

Despite wages stagnating in the U.S., manufacturers and their customer base alike have embraced SUVs with higher price tags and meatier profit margins. This has left most dealer negotiations concluding well above $37,000 per car, with payments averaging $573 per month.

While some have benefited from declining annual percentage rates (APR), with some well-qualified customers eligible for zero-percent financing, that isn’t the case for everybody. Edmunds reported that 13 percent of car buyers earned an APR of at least 10 percent in March — a 2-percent increase in buyers from February.

“Vehicle purchases made in March — particularly the second half — were likely need based,” explained Jessica Caldwell, the executive director of insights at Edmunds. “These shoppers might not have necessarily qualified for zero-percent finance offers but still needed a car in spite of everything else going on in the world.”

But having (or wanting) to buy a vehicle doesn’t change a situation where increasingly more consumers go into new purchases with negative equity. Roughly one-third of buyers who traded in old cars to buy new ones in the first nine months of 2019 were in this camp, compared with 19 percent a decade ago. These borrowers still owed around $5,000 after they traded in their cars before taking on new loans.

Just 5 years earlier, that balance was roughly $4,000. You can blame lenders for allowing this practice, employers for tamping down earnings, customers for buying beyond their means, and automakers for prioritizing expensive vehicles. They’re all guilty to some degree and will undoubtedly be individually blamed in dozens of think pieces when this situation implodes. Considering that we’re entering into a period of economic uncertainty, with recession/depression alarm bells sounding, it’s probably only a matter of months.

Let’s hope defaults are kept to a minimum and the economic impact stemming from the coronavirus pandemic is at least semi-manageable. No one is interested in reliving 2008.

[Image: Tero Vesalainen/Shutterstock]

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90 Comments on “As ATPs Rise and Loan Terms Grow Obese, Trade-ins are Less of a Trade-off...”


  • avatar
    Hummer

    What the hell are people buying to need on average 70 month loans? Did your parents never teach you the word ‘no’?

    You idiots are half way to a mortgage loan term.

    • 0 avatar
      Art Vandelay

      So the stuff I am looking at can be zero percent from 36-84 months and all the non apr incentives are still applicable.

      Why wouldn’t I take that. I have pure cash liquid in the bank to pay, but that is nice to have right now and is at least making some interest and cashing out investments, especially right now to buy a car that someone is going to float me the money for at zero percent is downright moronic.

      You have to do the math, but there are plenty of reasons to go long if it is the house’s money.

      • 0 avatar

        Exactly. If it is a subsidized interest, and you negotiate the sale with the dealer as not a payment buyer, why not pay with later money ? The normal rules apply-don’t over buy- but if your credit can pull a zero percent deal you are probably the sort of person who can make this decision intelligently anyway.

      • 0 avatar
        SoCalMikester

        only bad part is having to buy full coverage insurance for the whole time. after about 5 years the vehicle isnt worth all that much

    • 0 avatar
      raph

      Stagnating wages FTW!

    • 0 avatar
      MoDo

      The quickest way to stop these prices from continuing to inflate is cap loans at 60 months. When mr customer sees that the payments jump from $330 bi-weekly to $1380 a month he’ll turn around and leave so fast your head will spin. The $70,000 trucks, $80,000 SUV’s and $50,000 muscle cars will all languish on the lots and the prices will come back to reality. Not long ago $45,000 got you a loaded Yukon, now its almost double that. Insanity, and its all because of 84 month loan terms and 96 months are already showing up!

    • 0 avatar
      Robotdawn

      How much of this data is inflated by loans like mine though? 72 months. Zero down. I got $1600 on the hood for that though. First payment is going to be what I would have put down on the car if they had let me do so.

    • 0 avatar
      kjhkjlhkjhkljh kljhjkhjklhkjh

      ! RIGHT !!?? Unless you are the top 3% of car buyers and have the cash to pay outright in the bank and never will touch that money.. 70 months is financial suicide. You will almost always trade in with the articles authors referenced “negative equity”.

      This is classic piss poor money management skills where a truck and or a car is ‘add item’ to a persona like a purse or a hat.. this new generation buying into these ‘new car’ loans at 70+ months is crazy. I still have not EVER in my life bought a new car…

    • 0 avatar
      SoCalMikester

      my mortgage is $510/mo with about 10 years remaining

  • avatar
    SCE to AUX

    No, it’s just consumerism, plain and simple. Nobody *has* to get a 10%, 84-month loan on a $40k vehicle while they’re $5k upside down on their trade.

    Banks are merely protecting their interests, and mfrs build what people want.

  • avatar
    Funky D

    Reminds me of this guy from 2003 or so. Nothing has apparently been learned since…

  • avatar
    cprescott

    Wow. Rolling $5k in negative equity into an already over-priced new vehicle and carrying that for seven years is indeed a recipe for disaster.

    With modern cars being as good as they are after three years, it makes no sense to buy new these days. I set a budget in January 2019 for a “new to me car” and sought out the best 3 year old used car with the lowest mileage I could afford. I paid just under $12k for a 21k mile 2016 Hyundai Elantra with a manual transmission. The car was a former fleet car (not rental) and was like brand new when I got it. After 13k miles the car has given me wonderful service and a consistent over 41 miles per gallon tank in and tank out. I did replace the OEM Hankook tires for a set of cooper 65,000 mile tires and the car has improved in handling and ride.

    90% of people really don’t need a new car or truck. They just don’t understand the consequences of buying these over $40k messes for 7 years.

    Thankfully I am paying $50 extra per month to pay off my car as early as possible and likely will shave about 15 months off my car note. In several years I’ll have this paid off and will once again be in the no payment club where I resided with my last car that I bought and kept for 22 years.

  • avatar
    Glenn Mercer

    I get it, longer loan terms are riskier. No argument. But I do wonder about something which I have NEVER seen addressed: improving vehicle quality. If the average loan in 1965 (I am guessing, I do not KNOW) was 3 years, and the average car lasted 6 years (another guess!), then if in 2020 the average car lasts 12 years, wouldn’t we expect 6 year loans? (I know, I know, current terms go even longer than that!) I am trying to figure out how much of the increase from say 60 months to say 72 months is justified by the asset lasting longer, and how much by just OEMs inflating the market. After all, we see mortgages at 30 years and I never hear anyone saying those terms are ridiculous. (And before someone jumps in and says “Yes but cars depreciate and houses do not, so that’s different,” tell that to people who own houses in Detroit or Flint….) Again, I think these very long terms are dumb, yes, but I am not sure they are as totally dumb as many would assert.

    • 0 avatar
      jack4x

      This is a good point that is always lost in the “ZOMG 84 month loanzzzz!!!!” freakout pieces.

      A 7 year old vehicle has real value these days, and that was not always the case. Trading in negative equity is always foolish, but a 6 or 7 year loan with reasonable interest is not anything people should be concerned about.

    • 0 avatar

      I agree cars lasting longer is part of this. You also have manufacturers and wholesalers and dealers working together to keep used car values high. The combination ends up with higher average transaction prices for the OEM’s. I think the much bigger concern should be the negative equity rollovers.

    • 0 avatar
      PeriSoft

      This is definitely a good point. And in 1965 a new car was pretty much garbage after three years, not six. They were rusting on the lot, and engines needed complete overhauls after 100k, if they made it that long.

      So a 3-year loan in ’65 was pretty much like a 7-year loan is now, at least in terms of how much car you had left by the time it was paid off.

    • 0 avatar
      SCE to AUX

      I don’t subscribe to the ‘houses appreciate’ thinking that has prevailed for the last 5-8 decades. Maybe in some markets, but most people only get a couple shots at home buying, and appreciation in real dollars is not guaranteed.

      I sold my first house having earned only 20% equity after 12 years, on a 30-year loan at 9.5%, then 7% (1988-2000). My second (current) house was paid off in 13 years out of a 15-year loan, and that included almost a year of unemployment. Even if it sold today, I might barely break even (again, accounting for inflation and investments in it).

      So personally, I’m a strong advocate for the 15-year mortgage. The payments are not that much higher.

      But most people choose their house first, then figure out how to pay for it – just like cars! No wonder dealers love to use the foursquare.

      • 0 avatar
        Scoutdude

        Well since real estate is local appreciation can vary dramatically from one area to another. The house I’ve owned the longest, just over 30 years is worth near 4x what I paid for it. The initial rate was 8.5% IIRC vs the 4% I pay now. Sure because I’ve refinanced it I still owe money but only 15-16% of its value. Yes there have been a number of repairs and upgrades over that time but I’m still ahead of the game considerably.

        The property that I’ve owned the shortest amount of time just under 3 years is worth about 70% more than I paid (cash) and I’ve spent less than $500 on repairs.

        Being in the industry I can tell you most people do figure out how much they can afford, or at least think they can afford, before they pick out a house. I’ve only had two clients that saw a house they “had to have” w/o knowing how much they could really afford. In both cases it was actually within their means, in the one case he actually did a 20% down loan for 15 years.

        • 0 avatar
          DenverMike

          There’s plenty of folks that happily rent for some 70+ years of their lives. Bless their hearts!

          • 0 avatar
            Art Vandelay

            Why would you play that game long term? Rent goes up…at least a mortgage is fixed.

          • 0 avatar
            markf

            “Why would you play that game long term? Rent goes up…at least a mortgage is fixed.”

            it’s not all about the monthly payment, plus the fixed mortgage payment doesn’t help if your house declines in value and you have to sell.

            Renting offers a ton of flexibility, yes you may have to move more often but for a lot of folks they don’t want to be stuck. You can pick up and move with very little hassle.

            Not all downside to renting.

          • 0 avatar
            Art Vandelay

            I guess I have been lucky. Never failed to at least break even and I am on my 4th home. I just can’t see paying someone else’s mortgage. But to each their own…I have leased cars so I guess I get it.

          • 0 avatar
            Scoutdude

            @markf, if you discount the financial advantages of buying, and there are many over the long term, there are others. You can do what you want to the place and you don’t have to move if you don’t want to.

            Many years ago when I was starting out in RE investing I purchased a duplex that was already occupied. The one occupant had been there for ~20 years but the fact that a 30 year old was buying the place they had been renting, and was going to make a profit on them was the final straw. So at 60ish they bought their first house.

    • 0 avatar
      SoCalMikester

      i had a 30 year. refinanced to a lower rate for 20. $510/mo payments but every so often ill pay down some principal. when the market improves ill probably just pay the rest off. in the meantime im enjoying my PT status going in at 7am, home by lunch.

  • avatar
    civicjohn

    I have finally become my father. If either of my children came to me and asked my advice about a deal like this, there better be a defribulator handy. My dad’s rule was 36 months and $100/ max monthly payment.

    Mine are 18 and 21, and have reliable transportation. The one hope I have for this generation is they don’t get caught up with new car fever. My son drives the car he learned in, and wants to keep it forever…but he loves my vintage audio equipment and turntable. Maybe there is still hope.

  • avatar
    Flipper35

    We have no debt other than the mortgage. We did a long(er) term loan for our last car and paid it off in four years. But, had something come up we would have had a small minimum payment. We bought new because at the time we bought we could get new for not much more than a 2 year old used. Of course, we tend to keep our cars a while. Our newest is a 2014 and the oldest is a 2000. Well, a toy that is a 1994 and a bike (XT 600) from 1985.

  • avatar
    87 Morgan

    Several factors at play right now, obviously.

    First, there is zero liquidity in the used car market right now. You can not expect to get ‘top dollar’ for your trade when dealers are hoarding cash; so if you are going to trade right now expect the figure to be considerably lower than what you might have received 30 day ago. This will change soon enough, so buyers really are better off to wait until things open up. The incentives will last past quarantine.

    Second, as noted above a 3 year loan is not realistic for most people who are living pay check to pay check nor is driving some clapped out hooptie of dubious origin on a 3 year loan, since that is all they payment they can swing will get them. This is when JB’s piece that he wrote about you have to be rich to ‘afford’ and old car. I do not believe he was wrong in his premise.
    Other than say a Land Rover, all new or near new stuff will be fine for a 7 year loan. If you take care of it you can get an easy 10 years worth of service, or more. Plus, for many and I know some here will argue it, it is easier to buy a new car purchase a quality service contract at purchase time and know that for 7 or 8 years the only concern need be maintenance and insurance.

    • 0 avatar
      ajla

      “Other than say a Land Rover, all new or near new stuff will be fine for a 7 year loan.”

      The vehicle might be fine for a 7 year loan but is your income and lifestyle going to be fine for a 7 year loan?

      I’m far from a hairshirt Dave Ramsey person but some people do need to bite the bullet and finance something cheaper. Yes, there may be some people where a 72 month loan on a Mirage is the only way they can get by, but I don’t think that’s the norm.

    • 0 avatar

      A while back I found some data on new car buyers that’s kind of interesting. First the age of buyers keeps going up. Next most of the buyers have much higher then average wages. But to Jacks point the percentage of new car buyers goes back up well under average wages. Now some of this is Retirees with little to no reported income, but some is the person Jack describes buying a new Elantra off the lots for $225/ month payment. So who actually purchases new cars? Apparently wealthy people retirees and working poor. The data also showed that the bottom end buyers were shrinking over the past few decades, which explains why average transaction prices went up. Less and less of those working poor have good enough credit to get a new car and instead finance newer used cars.
      So to modify Jacks premise you need to be somewhere near middle class to drive a used car, or handy or know someone handy.

      I used to live in an extremely poor county. Almost all the cars were more then 8 years old. Most of the new cars were retirees or younger guys and girls who spent large percentages of their income to buy an S15/sonoma or Grand Am (there was only two new car dealers in the entire county a GMC/Pontiac point and a Ford one and the county was roughly twice the size of RI.)

    • 0 avatar
      R Henry

      “… a 3 year loan is not realistic for most people who are living pay check to pay check”

      If they can’t pay it off in three years, they can’t afford it. Simple rule, good rule.

      • 0 avatar
        jack4x

        Why is 3 years the magic number, other than some outdated nonsense about how long cars used to last?

        There is absolutely nothing wrong with a longer loan term if the debt is used responsibly.

        • 0 avatar
          R Henry

          Why do we have a 21 year old drinking age? Why do mortgage lenders require down payments? Experience shows what works.

          Paying for a car for terms longer than 36 months increases the risk of noteholders being too far upside down, and greatly increases defaults.

          • 0 avatar
            jack4x

            Yes, and a lender will price that risk appropriately, which is why an 84 month loan generally carries a higher interest rate than a 36 month (outside of promotions).

            Debt is a tool. Like most tools, it can be used responsibly or irresponsibly, where the latter carries consequences. But meaningless platitudes like “you can’t afford it unless you can pay it off in 3 years” are both simplistic and condescending. Not to mention incorrect for millions who use longer loans to their financial advantage.

        • 0 avatar
          ToolGuy

          “Debt is a tool” … like meth is a tool.

      • 0 avatar

        I take it you haven’t lived among most of the working people in the US. Plenty of people can’t really afford a 100 bucks a month after rent and food but they need a car to get back and forth to work so they over extend because they don’t have many other options.

        • 0 avatar
          R Henry

          The last thing a paycheck to paycheck wage earner needs is credit debt.

          • 0 avatar

            True but if you need a car to get to work and you can’t fix it your self it may make more financial sense then the alternative.

          • 0 avatar
            Erikstrawn

            Herein lies the problem with economic models that rely on people behaving in their own best interest. People do not behave in what economists consider “a rational way”. Psychologists will tell you it’s entirely rational. “I need a car” is an imminent need. “Car payment” is a future liability. In a hierarchy of needs, the now requirement trumps the future pain.

  • avatar
    Imagefont

    Gosh, I feel like an idiot for not financing a depreciating asset, like a car. I should go out and buy a useless RAM Rebel for 96 months and zero interest! Of course it’s not really zero interest because you’re paying a lot more up front, but tell yourself you’re getting a great deal. You’re not getting a discount when they have you on loan terms, there’s a reason your bank won’t give you the same terms you know. But people justify what they want. My poor little Honda simply refuses to break and I just keep driving it. And true thing is just too darn easy to fix anyway, it’s like a conspiracy to keep me from financing something I don’t need! So unfair…

    • 0 avatar
      ajla

      I like vehicles so I spend my money on them. Yes, they are depreciating but so is food, vacations, appliances, lightbulbs, and many other things people buy. I’m not looking to hoard cash until I’m 75 years old just to die with a huge bank account when CoronavirusIII breaks out.

      There is no moral failing to buying a Ram Rebel. The problem is when people put themselves in financial peril for the purchase.

      • 0 avatar

        Depending on where you live and time span even real estate can be a depreciating asset. In the almost 20 years I have lived in my house it’s only appreciated about 30%. Per the gov inflation calendar it would need to be 46% increase just to keep up with inflation.

    • 0 avatar
      Scoutdude

      Well it does depend on the actual deal, ie how much of a rebate are you giving up vs the savings on interest if you would be paying market rates. Buying a low end model and perfect credit, maybe the rebate is the better deal, buying the top of the line and slightly less than perfect credit then the 0% may be the better deal, in actual dollars out of pocket. However when you factor in inflation you see that the dollar you pay with in 5 or 6 years is worth less than that dollar today pushing things in favor of the 0% interest loan.

  • avatar
    eggsalad

    Cheap, long term mortgages lead to house prices going up.

    Do you think college would be so expensive if 18-year-olds with no credit history could not get $100,000 college loans?

    Cars do the same thing.

    • 0 avatar
      markf

      “Cheap, long term mortgages lead to house prices going up.

      Do you think college would be so expensive if 18-year-olds with no credit history could not get $100,000 college loans?

      Cars do the same thing.”

      Excellent points. Also, all three of those industries can rely on a Government bailout when things go south. In the case of student loans it was the perma bailout of not being able to discharge those loans in bankruptcy.

      Also, the Feds permanent ZIRP policy plays a huge role in price/asset infiltration.

    • 0 avatar
      PeriSoft

      Cars aren’t *actually* more expensive. You can go get a pretty nice Honda Accord for $23k all day long, and it’ll have more features, better power, better safety, and more space than anything anyone got for the equivalent of that much money in 2000 or 1990 or 1980. People aren’t spending $37k on cars because there aren’t any cars that cost less than that, they’re spending it because those are the cars they *want*. Which is fine, but that’s a different thing entirely than “Cars are expensive and you can’t buy an inexpensive one”, which isn’t true.

      • 0 avatar

        They are and they aren’t. Cheap cars are as you say still really cheap. But certain segments like Trucks and SUV’s have gotten more expensive over time. A few years ago someone published a graph showing like 25 car models MSRP over the last 30 years with a center line for inflation. Compact and midsize cars were well under the line but things like Suburbans and Silverado were way above.

        You also have the fact that less and less of the middle class are buying cars, instead new car buyers are getting wealthier which drives up transaction price.

        • 0 avatar
          PeriSoft

          Yeah, but pickups and big SUVs have turned into luxury cars. Of course they’re more expensive now, because now you can get S-Class amenities in a thing that had a vinyl bench seat and three-on-the-tree in 1994. I’d like to see a like-for-like comparison of “work truck” spec trucks; I’m guessing the disparity wouldn’t be nearly as great as the recent addition of uber-luxe $80k trucks to the mix has made it look.

          • 0 avatar

            If I recall the most egregious example was a base Tahoe from 97 to a base tahoe in 2017 has one of the highest increases over inflation.

    • 0 avatar
      Scoutdude

      The thing is 30 year mortgages have been the norm for over 30 years. Yes rates are down, significantly from that point in time. I think my first loan was at ~8%, but that is not the biggest factor, in our area. The biggest factor is wage growth of the upper middle and higher income levels.

  • avatar
    JMII

    I’ve never understood why anyone would get into a car loan that puts you so obviously upside down. However the allure of free money (0%) is strong. Now if you put enough down you’ll be OK, but such long term loans seem like a bad deal a depreciating asset. Your payments remain the same but the value of the vehicle keeps dropping.

    I assume most people don’t keep a vehicle long enough to even reach the end of such terms. Then at trade in time they are shocked to learn they still owe money. No problem – the dealer just rolls that balance into the new loan and the cycle starts over again. At that point you might as well lease.

    Personally I buy used cars and avoid these issues.

    • 0 avatar
      jack4x

      The car depreciates at the same rate regardless of the financing terms.

      The key is doing something productive with the extra cash flow generated by financing long term vs short term or paying cash up front. If one has the discipline to do this, the 0% offers are very enticing and being upside down is not a problem because the money banked is doing work elsewhere and earning a return.

      If the person is not willing or disciplined enough to do that, all bets are off.

      • 0 avatar
        Scoutdude

        Was going to say the same thing. Being upside down in a 0% 72-84 month loan is exactly where you want to be if you didn’t forgo a very large rebate and you have the means and discipline.

        Of course that doesn’t mean you should roll negative equity into your next loan by trading it in too soon w/o the ability to bring money to the table.

        Here is some fun math using the rate one of my credit unions is offering. 2.74%.

        Do a 60 month loan and your payments will be about $803/month on a $45k loan. Total of payments $48,204 The 0% for 72 months will cost you $625/month. Total of payments $45,000

        So lets take that extra $178 per month and invest it at .5% per year compounded monthly. After you’ve put that $178 in for 60 months you’ll have $10,817 in the account. Now leave it earning that .5% and take out your $625 per month for 12 months. You’ll be left with $3,350. Meaning you spent $41,650 or you’ve saved $6554 vs that market rate for 60 months.

        With a 48 month loan your total payments are only $47,562 and investing the extra $366 per month for 48 months before withdrawing $625 per month for 24 months still leaves you with $2,848 at the end of 72 months for a savings of $5380.

        • 0 avatar
          ajla

          “and you have the means”

          Those are some good posts but this phrase in your opening paragraph is extremely important.

          • 0 avatar
            Scoutdude

            I think the discipline aspect is extremely important too and even trumps the means, because if you are buying anew car there is a certain level of means implied.

            So that means instead of the Diamond Edition with the extra cost paint and wheels you step down to the Cubic Zirconium Edition with the nicer stereo saving several thousand in, but still not being subjected to the hair shirt Rhinestone edition.

            Of course many out there see that they can “afford” the Diamond Edition with that 0% for 72 and self control (discipline) goes out the door.

            Or it is an in to new car ownership that someone might not have been otherwise able to afford, which may or may not be a good thing.

      • 0 avatar
        Scoutdude

        Of course some of you will be saying but I can get a rebate instead of the 0% loan.

        So with that same 50k car lets run the numbers again, a couple of different ways.

        1st guy says hey a $5k rebate, I’m keeping my $5k and blowing it on something else. He’ll be in the same boat when all is said and done since of course he still financed $45k.

        2nd guy still puts in his $5k in cash so he now has a $40k loan.

        Total of payments $42,844 while if he banks the extra $89/month that money runs out by the 9th of those 12 withdrawals and the $5k rebate on the $50k car is the better deal if you apply that rebate money to your down payment.

        Now lets keep our $5k and invest it. Total of payments is still $48,204, but that $5k riding at .5% for 5 years means you’ve earned $127, so you are still into the car for over $48k.

        At a $2500 rebate applied to purchase you end up with total payments of $45,526 and investing the extra $134 per month means at the end of 6 years you have $663 in your account and taking the 0% interest saved you almost $1200.

        • 0 avatar
          Tele Vision

          @ Scoutdude

          Excellent crunching. I went for that when I bought my first – and only – new car two decades ago. Lemme throw a wrinkle in here:

          A) Buy a used car with cash.

          B) Buy a great socket set.

          Job done.

          Depreciation is your friend if you have two hands and a few thousand dollars for a car and some tools. I’ve been buying used cars and trucks for twenty years and didn’t owe a dime on any of them. I’ve had a Ford Tempo; a 944; two Suburbans; two Pontiac wagons; a new Hyundai that was a financial mistake; an Intrepid; a Jeep Grand Cherokee – and I now have a 2010 F-150 and a 2007 CTS-V.

          Some other clot ate the depreciation on all of them – but for the Hyundai. I ate that.

          Never again.

          • 0 avatar
            JMII

            The depreciation curve is why I buy used only now too. My last three cars where between 40 and 50% off their original MSRP and very much in “like new” condition. Two of them had well below average miles, like 50% less! The ‘net has made finding a gem easier and fixing most issues is just a YouTube video + RockAuto order away. I was never much of a gear head but I’ve fixed things in less time then it would take to drive to the dealership.

    • 0 avatar
      Maymar

      Personally, at the time I bought, I had a job that absolutely required a car, and required a fair amount of driving. By the time I would have gotten to something I didn’t need to finance, it was older, higher mileage stuff that I don’t have the space to work on (condo with overactive HOA). With 0% financing on the table (on a reliable subcompact), there was little reason not to take the 84 month term and just focus on saving. I’m now 5.5 years in and have no imminent plans to get rid of the car, so it’s worked out fine.

  • avatar
    Dartdude

    Car companies need to focus on affordability. If they don’t when the Chinese company come here, they kill off American car companies.

  • avatar
    haroldhill

    “You can blame …. customers for buying beyond their means”

    C’mon, people, get real. Unless you need a truck for work, what will a $19k car or crossover NOT do for you?

  • avatar
    thegamper

    In my experience, I have found that most desirable low mileage used cars are priced pretty high. If I am looking at a used car and it is being offered with 30k miles on the clock for $24,000 and I can get the new car for $32,000 with a factory warranty, I will pay the extra money. Not only that, but for those with good credit, new car buying terms are hard to beat. Paying .9% on a car I bought last summer. One thing I would caution ANYONE about, regardless of the term, regardless new or used…. have the car paid off as far in advance of 100k miles as possible. Things are going to break, need replacement. A car payment coupled with big repair bills is a horrible financial disaster for a lot of people.

  • avatar
    Arthur Dailey

    Jack Baruth nailed this in November 26th 2015 in one of the very best columns ever posted on this site: ‘You Gotta Be Rich to Own a Cheap Car’.

    1) Cars last much longer now. The 3 year loan was designed in a day and age when a car that was more than 3 years old was well on its way to being a ‘beater’.
    2) You can get a far better interest rate on a new car than on a used car. So the final purchase cost on a used car may not be that much lower.
    3) I am in Canada, so ‘cheap’ ‘good’ used cars are few and far between. We have a much smaller market, a smaller supply of used cars, and we use salt in much of the country. Also Canadians buy more cheap cars, small cars and hatchbacks than Americans. The so called ‘Quebec specials’.
    4) Why would I use any cash reserves to buy a depreciating asset? I can take that cash put it into my retirement fund (RSP) and then get a considerable tax reduction based on my contribution. A far better use of available cash than using it towards an auto purchase.
    5) If I purchase a 5 year old used car, the chances are that I will only have to replace it 5 years sooner than if I purchased a new car. And I will have to spend more on its maintenance than if I bought a new car. And I am dependent upon how the previous owner maintained it.
    6) When taking out long term loans inflation is your friend. Your payments actually are worth about 2.5% less in ‘real money’ each year of your loan.
    7) If you buy your vehicle and keep it for longer than your loan, then being ‘upside down’ is not that big a problem.

    • 0 avatar
      PeriSoft

      All of this is true, and completely flies over the heads of the people whose general mantra is to live as miserably as possible in order to prove that you’re more morally upright than the other guy. In the end, I’m convinced that 90% of “financial advice” is really just repackaged Puritanism. Fun?! That’s a sin!

      • 0 avatar
        Art Vandelay

        Yep…”Look at me…I’m soooo smart”. Well if you were that smart you’d have made life decisions so that something beyond those beaters you claim to be so smart for driving were within your means.

      • 0 avatar
        jack4x

        I too am mystified by the cult of the beater.

        Why even be a car enthusiast if the sum of your ambition is to cycle from used Civic to used Corolla, never paying more than $2000 at a time?

        • 0 avatar

          Well if your a car guy that likes working on your own stuff it makes both financial and hobby sense.
          I have never financed a car average cash price is likley under 4k per car over the last 25 years of cars.

          • 0 avatar
            jack4x

            Cheapness is not a prerequisite for working on your own vehicles.

            I work on everything I own, up to and including my Viper.

          • 0 avatar

            But it may not be cheapness. It may be circumstance. When your making 36 grand a year and can fix your own car it’s pretty much just smart to buy an older car for cash. But I can see the other side too. There have been plenty of times in my life when a 200 a month car loan would have caused me to go into bankruptcy (or get the car repo’d) and I have been working fulltime continually my whole adult life (for most of it white collar type jobs).

          • 0 avatar
            jack4x

            Oh I don’t dispute any of that. Necessity of driving a cheaper car is reality for many.

            The people I’m complaining about are the ones who could easily afford a nicer car but feel its somehow noble and virtuous to sacrifice 50 years of enjoyment so they will have a couple million more in retirement, at which time they will (maybe) cut loose and buy something they actually like. All the while lecturing the rest of us about how “unless you pay that off in 3 years you can’t afford it”. I question why that type of person feels the need to comment on car enthusiast sites.

    • 0 avatar
      Art Vandelay

      Yep. The key is to not buy beyond your means no matter how you are paying for it, new or used.

      • 0 avatar
        DenverMike

        Does it really have to be one or the other? Paying cash for new, lightly equipped basic model (just V8, 4X4, extra cab and limited slip, where applicable), keeping it for 15 years, light/tasteful mods along the way, doesn’t have to sacrifice retirement contribution or other investments, risky or otherwise.

        If all “financed” new car buyers had to hand over a briefcase full of cash to their dealer (provided by the lender) at point-of-sale, most would rethink the $60K “hard loaded” model for the $30K version with the tiny 2″ touchscreen, and “pocket the change” (or seriously consider it).

        But it’s all Monopoly Money.

        Except I agree life’s too short for used/old/stinky Corollas and such (or brand new ones if you ask me!)

      • 0 avatar
        RHD

        Buying a well-depreciated used car for cash is inherently wise. Paying for years on a depreciating asset that’s only equally useful is economic foolishness.

        Money = Security. Lack of sufficient money causes repossession, bad credit, embarrassment, and so on.
        The key is to buy a GOOD used car from a private party (no dealer mark-up or tall tales), look carefully at the repair and maintenance receipts and records, have it inspected (if you have any doubts), and negotiate a fair price for all concerned.

        There’s no doc fee, Scotchguard upgrade, window VIN etching, overpriced extended warranty, salesman’s commission or any of that baloney to deal with.

        If you still feel the need to send a fixed amount of money off somewhere for the next five or six years, open a brokerage account online and “dollar cost average” into a growth mutual fund or whatever you feel comfortable with. The wealth that you accumulate will be eye-opening, and you’ll be much better off than having spent full price on what is now a depreciated used car.

  • avatar
    R Henry

    “Why would someone voluntarily agree to such a lengthy agreement? They may not have much of an alternative due to similar growth in vehicle transaction prices. ”

    Uhm, no. There is always an alternative. Used. Lower trim. Cheaper vehicle.

    My rule of thumb, which has served me well, is: If I can’t pay it off in three years, I can’t afford it.

  • avatar
    Art Vandelay

    Yep…”Look at me…I’m soooo smart”. Well if you were that smart you’d have made life decisions so that something beyond those beaters you claim to be so smart for driving were within your means.

  • avatar
    jkross22

    I have a plan that can seriously stop this. Wanna hear it? Here it is:

    Add financial decision making into the math curriculum for k-12 education. Make the examples of the people who overextend look like fools.

    There is no shame in teaching kids age appropriate reality. People should be made to feel shame for stupid decisions, but schools need to show kids that there are better choices to be made.

    • 0 avatar

      So I did have this class in school. plenty of my class mates (including myself briefly) made lots of credit mistakes. Life, mental state , and personality do more then lack of education.

    • 0 avatar
      krhodes1

      Wouldn’t make a bit of difference. I have a summa cum laude 4yr accounting degree, and I still did plenty of financially dumb sh!t my first 10 years out of college (including being upside-down on a new car I couldn’t afford when things went sideways). And that with having an old man who was amazingly smart with money.

      Wisdom comes with age and experience.

  • avatar
    Daniel J

    We’d jump on some of these financing deals if we could actually find what we are looking for. We’d like to check out a Sportage SX but can’t find one close. We’d even look at a Buick envision as long as it was in the premium II trim. Ford escape with the 2.0T is hard to find too.

  • avatar
    Erikstrawn

    Whatever happened to holding the lender accountable for their actions? Stop bailing out the banks and they’ll stop lending stupidly. They’re charging insane interest and making huge profits on sub-prime loans, knowing full well if the economy turns south and they are in danger of bankruptcy the government will just bail them out. Yet we blame the borrowers when the economy tanks?

  • avatar
    ToolGuy

    “I know I’m not supposed to like muscle cars, but I like muscle cars.” – Joe Biden

    Life lesson from our next President: Forget paying for your own vehicle – have you old man down at the dealership hook you up with a new Corvette as a wedding present. Then years later, maybe your kids will have the engine rebuilt for you.

    See? Easy!

  • avatar
    alien1979

    First time post here.

    I would like to offer a recent example of how buying used saved me a ton of money.

    Always wanted a Fiat 500 Abarth, but did not want to eat the massive depreciation. Just picked up a 2013 with all the options I wanted for $7200 with 75k on it and some documentation. Put another $2000 into it replacing the wheels, tires and fixing small stuff.

    Original owner paid almost $30k for it in 2013. In fact, he complained to me how much he had lost on the car. It isn’t perfect, but close enough. It is a second car for me so not daily driven.

    BTW, it took me many years to learn these lessons, but better late than never.

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