By on October 27, 2021

Consumer Reports just released the findings of a year-long study looking into the latest trends in automotive loans and car payments. The resulting information highlights just how explosive the debt growth has been over the last 10 years and the arbitrary way in which borrowers are now being treated.

Long story short, we’re all being swindled.

With vehicle prices ballooning and the associated loans becoming longer than ever, dealers and lenders seem to be operating whatever way yields the steepest profit margins with only a modicum of consideration being given to the established frameworks designed to act as a guard rail. This has led to U.S. citizens carrying around a record $1.37 trillion in automotive load debt and customers with good credit being treated no different than those that fall into the subprime category. Sadly, the issue appears only appears to be worsening as new economic perils are only making things more expensive. Meanwhile, data from the Federal Reserve Bank of New York is projecting national auto debt to swell to $1.42 trillion by year’s end. 

For the sake of comparison, Americans were only on the hook for $710 billion going into 2011. But the amount of debt being hauled behind us is only part of the story. Consumer Reports has used the study to assert that vehicles are eating up an increasingly large share of household incomes, citing nearly 858,000 loans from 17 major auto lenders.

From CR:

Today, Americans with new-car loans make an average monthly payment approaching $600 — up roughly 25 percent from a decade ago.

Most borrowers pay their loan with no problem. But in recent years, tens of thousands of consumers have found themselves in financial sinkholes after receiving high-interest, longer-term auto loans that, like the Maryland resident, put them at serious risk of default, CR’s investigation found.

This is happening as total auto loan debt held by Americans has increased dramatically over the past 10 years, surpassing $1.4 trillion — more than the gross domestic product of Australia. Because of recently skyrocketing prices for new and used cars, that debt is likely to grow even more.

“You’re not helping somebody to get a car if the odds are they’re going to lose it,” says Kathleen Engel, research professor at Suffolk University Law School in Boston who studies subprime financial products and is also the vice chair of CR’s board of directors. “That’s not getting somebody a car. That’s taking their money.”

Worse yet is that it’s not unheard of to see APRs surpassing 25 percent and lenders don’t seem to care who the customer is. While credit scores were invented back in the 1950s, under the auspices of delivering a standardized and impartial way of determining the creditworthiness of individual customers, the FICO score system used today didn’t appear until 1989. But it’s often been accused of allowing lenders to enact predatory stipulations on loans going to those with less-than-desirable numbers, particularly as the system has seen broader use.

Credit scores no longer apply exclusively to mortgage applications and loans. They’re now being included as part of some rental agreements and even job applications. It’s gotten to the point where we’ve begun to see pushback, often with claims that scoring doesn’t accurately represent debt risk and functionally serves to keep certain individuals from achieving upward mobility. While we’re not going to be diving into that, CR has asserted that the arbitrary nature of credit scoring has become a serious issue.

The outlet suggested that dealers and lenders are setting interest rates based upon something other than the standard loan underwriting practices. Instead, they’re conducting business in whatever manner “they think they can get away with” because many borrowers have no idea that they can (and should) negotiate terms or pit lenders/dealers against each other in hopes of getting a better bargain. Some of this is down to the legal and regulatory disparities between states. Though the outcome is the issue of focus because it’s in danger of permanently upending the economy when a meaningful percentage of the population can no longer afford to drive:

For one thing, it makes it harder to build the savings needed to purchase a car outright, says Pamela Foohey, a professor at the Cardozo School of Law in New York City who has published several studies on auto lending. Longer-term car loans — the average is now about six years — compound the problem, she says, trapping people in debt to fund a necessity like transportation.

“The trap for consumers, of course, is a boon to lenders,” Foohey says.

Falling behind on car payments can lead to repossession, triggering a cascade of other problems.

Lana Ash of Oklahoma and Dennis Lamar of Connecticut both had their vehicles repossessed last year in the middle of the pandemic, after getting stuck with high-APR car loans that proved to be more expensive than they could afford. Without a car, Lamar had to bum rides to doctors’ appointments. Ash had to take out another loan to fix a busted transmission on an old car.

“To this day, I still get emotional and upset about it,” Ash says.

Many Americans have faced similar outcomes. By spring 2021, an estimated 1 in 12 people with a car loan or lease, or almost 8 million Americans, were more than 90 days late on their car payments, according to a CR analysis of data from the Federal Reserve Banks of New York and Philadelphia.

The resulting scenario has left us with a non-comparative automotive market where big businesses and banks can more effectively take advantage of their own customers. CR claimed that 46 percent of the 800,000+ loans reviewed were underwater, with owners owing $3,700 more (on average) than what the vehicle was actually worth. But we’re still just scratching the surface on how dark this is all becoming.

Consumer Reports utilized information disclosed to the U.S. Securities and Exchange Commission in 2019 and 2020 to investors of auto loan bonds, rounding out its research pool with thousands of pages of regulatory filings, court records, trade publications, industry reports, financial records, public documents obtained through the Freedom of Information Act, and interviews with more than 90 federal and state regulators, advocacy organizations, consumers, lawyers, legal experts, academics, and industry groups.

That data led to a few realizations, starting with the fact that your credit score is largely arbitrary when it comes to how vicious your auto loan is going to be. While there was a prevalence of individuals with scores exceeding 720 to receive better terms, literally everyone (including subprime borrowers) was subjected to APRs ranging between zero and 25 percent. CR likewise worried that lenders were intentionally putting customers into loans they couldn’t possibly afford, with over half of all subprime borrowers getting stuck with payments that were higher than 10 percent of their annual income. But almost none of the lenders bothered to check up on that, resulting in 96 percent of all auto loans going to people who never had their income verified.

This has likewise resulted in a surge of delinquencies over the last few years and a staggering increase in the amount of debt being carried around by Americans. But perhaps most alarming is how nobody seems interested in adhering to the underwriting practices that were supposedly put into place to keep things running smoothly in the fairest possible manner. Credit scores seem to be used to punish the subprime market without really offering much protection to those with good scores.

Consumer Reports said that it reached out to all 17 lenders covered in the analysis, in addition to industry groups like the American Financial Services Association and the National Automotive Finance Association. Some opted not to respond, with everyone declining to answer every question posed. Most also made assertions that consumers have the ability to make informed decisions for themselves and that there’s a wealth of information online for those interested.

Industry groups and financial institutions likewise claimed that auto lending was sufficiently regulated in the United States, suggesting that CR research failed to “contain enough information to accurately compare the loans similarly situated borrowers received.” Double-digit interest rates were dismissed as anomalies while the increased number of delinquencies and repossessions were dismissed entirely as they saw themselves as the only way for some customers to get vehicular loans.

“Consumers understand that rates will vary from creditor to creditor,” said Ed McFadden, a spokesperson for the American Financial Services Association. “They have ample opportunity to research and shop.”

Considering extended loan terms and a slightly higher interest rate can effectively add thousands onto even a modestly priced vehicle, it’s not difficult to see why CR is so critical of modern lending practices. There’s really no other way to spin this. Consumers are either morons, unworthy of being cut fairer deals, or financial institutions (and the dealership intermediaries) are predatory assholes that never seem to assume responsibility for their actions. And it’s all going to continue to be exacerbated as vehicle prices increase and automakers attempt to shift toward a direct sales model that further nullifies customers’ ability to negotiate payments.

This is like how modern safety requirements technically make it borderline impossible for new manufacturers to exist or any of my other anti-regulatory rants. CR has identified several industries working together to use the existing principles in whatever way yields them the most money. If you have some spare time, I highly suggest reading the entire report and inspecting the relevant investigative materials. It’s quite good, loaded with specific examples of the aforementioned problems, and written by Ryan Felton — who is adept at putting together these kinds of stories.

[Image: Gretchen Gunda Enger/Shutterstock]

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197 Comments on “Study: Automotive Debt Is Out of Control, You’re Being Swindled...”


  • avatar
    Lou_BC

    Those of us who exercise healthy cynicism already know this. I saw a similar report in relation to Canadian vehicle buyers. A fool and his money are soon parted. In this case a fool with his loan agreement is fooked!

  • avatar
    karmang46

    “Consumers are either morons, unworthy of being cut fairer deals, or financial institutions (and the dealership intermediaries) are predatory assholes that never seem to assume responsibility for their actions”

    ¿Por qué no los dos?

  • avatar
    dwford

    Shades of the housing meltdown in 2008. The dealers don’t care if the customers can’t afford the cars, they have no risk down the road. And the banks don’t care either, since the loans will just be sold off to Wall Street.

    • 0 avatar
      28-Cars-Later

      …and Wall street will just stick its hand out again to .gov/The Fed when the music stops. 2008 still has consequences.

    • 0 avatar
      FreedMike

      Should I really freak you out and mention that the liar mortgage loans have returned?

      • 0 avatar
        28-Cars-Later

        Please expand on this.

        • 0 avatar
          FreedMike

          No-ratio, stated income, no-doc…

          I don’t know what the market share of these crapheap loans is, but I didn’t see them for years. But Theyyrrrre Baaack!!!!

          And they’re back because of the run-up in housing prices. That’s the only way lenders will make them. The only good thing is that they’re requiring 20-30% equity. 15 years ago, they were doing them with as little as 5% equity.

          • 0 avatar
            28-Cars-Later

            More refis than purchase, perhaps?

          • 0 avatar
            FreedMike

            Both

          • 0 avatar
            28-Cars-Later

            Maybe I’m misunderstanding, but such issuing such mortgages with 20-30% down seems far less risky than 0-5% when there is little skin in the game.

          • 0 avatar
            FreedMike

            Agreed, but you’re still dealing with people whose income is a total mystery.

          • 0 avatar
            Scoutdude

            As a RE agent I have been getting more and more emails from lenders touting their liar’s loans in the last year or so.

          • 0 avatar
            28-Cars-Later

            @Freed

            May be more of a feature than a bug. Issuing 0-5% down NINJA loans which then promptly went underwater didn’t work out so well. Now if 20% of the new loans default because they destroy the economy some more, those loans are likely not underwater at all and the lienholder gets to steal the 20-30% equity.

          • 0 avatar
            FreedMike

            @28:

            That assumes the home values are still there. When things went south, they weren’t. The lenders took it in the shorts like everyone else. Hence, the bailouts.

          • 0 avatar
            28-Cars-Later

            That’s true, but with the additional equity requirements I doubt they’d be underwater even in a pullback scenario. I doubt 2008’s -40% is happening ever again.

          • 0 avatar
            FreedMike

            @28 –

            I pray you’re right – the last time that happened I couldn’t get hired in my industry for well over a year, and all that BS was the reason why. It was a freaking disaster. Don’t want to relive that ever again.

            Probably more than bit worrisome to see that stuff crossing my desk again.

    • 0 avatar
      Ol Shel

      And history has shown that human beings tend to be too optimistic when it comes to their belief in their future finances, and ability to pay loans back. We have known this quirk of psychology for a very long time, and the lenders exploit it.

      Either you put rules in place that protect consumers and allow the businesses to make reasonable profits, or you embrace a race to the bottom where, if you can swindle someone, then you’re hero for punishing those who are ‘too stupid’ to be treated with dignity.

      • 0 avatar
        slyons

        As a 32 year old first time home shopper…. The crash can’t come soon enough. The insane increases in home prices can’t possibly be sustainable…. Right? I viewed a house 2 years ago listed for 300k, it just came back on the market with 0 renovations for 400k. What the hell.

        Of course, when we finally get our shit together to be able to afford one of these houses that we could have afforded 2 years ago but is now out of reach, the market will probably crash then and we’ll be underwater up to our tits. But can’t keep waiting… the viable reproductive years are going by fast.

        Please crash, please crash, please crash.

        Not to mention, anyone with kids, if the market keeps going the way it’s going now, they’re never going to move out because rents will be 3000 a month everywhere and single family homes will cost 800k on average.

        • 0 avatar

          Just be sure you don’t work in an industry which lays off its workers when there’s a crash like you’re hoping for.

          (Coming in 2023 btw.)

        • 0 avatar
          ToolGuy

          @slyons,

          My neighborhood is starting to do the thing (holds hand at 34° upward angle). Zillow and Redfin show big (big) jumps recently, and I haven’t figured out exactly why.

          Feels a little Bubblicious.

          [Good luck with your family planning.]

        • 0 avatar
          Scoutdude

          Don’t count on a crash anytime soon in most areas, and if we do see a drop in prices entry level will be the least affected in most areas.

          It is a supply and demand issue and in most areas single family entry level housing is not being built and hasn’t been built much since the big crash.

          The crash occurred last time due to a number of factors not present now. 0 down liar’s loans were everywhere, negative amortization lows and adjustable rate mortgages were very common many with low low initial rates and big adjustments later. “No problem you’ll be making more then and you can always refinance before the rate adjustment” 80/20 loans for both purchase and refinancing was also very common. All of that went on for many years before the crash so there were a lot of people with loans they could barely afford only 1 hiccup away from getting behind. Things then compounded as lending standards were tightened preventing many people from refinancing before that rate change and others from entering the market.

          Since the crash all those “creative” financing options that put so many people in houses they couldn’t afford had all but disappeared.

          We are seeing some of those things come back like the liar’s loans but as mentioned those have so far been limited to 70-80% LTV and a good credit score.

  • avatar
    SaulTigh

    As long as people primarily care about 1) the monthly payment, and 2) convenience, they’re going to be taking loans from dealerships and getting bent over on a 4-square (either literal or metaphorical).

    I’m financially savvy enough that I refuse to sign up for a loan that doesn’t meet my qualifications, but that education was hard won and I’m now in a position where I could buy some pretty serious iron without a loan, and that is indeed my plan should I need to buy a car in the future. I’ve declared myself done with taking on any new debt, EVER.

    • 0 avatar
      W126

      You’re in the minority of people who make smart financial decisions. It sounds like your decisions have already paid off and will continue to increase your wealth.

    • 0 avatar
      Lie2me

      It’s taken me a lifetime to be mortgage and car-loan free and there’s nothing that will get me to go back to either. I buy cars when the cash is readily available for the car I want. I buy dependable cars that fit my budget and suit my needs. I live in a house that’s paid for and that maintenance and taxes aren’t a burden

      I sleep very well at night, because THAT is true financial freedom

      • 0 avatar
        tomLU86

        Lie2me, your attitude and actions don’t comport with the reality of most Americans.

        I observe that most Americans want more than they can really afford, even if they have good jobs. Debt is a part of life. Rather than save now and buy later, they buy now and pay later.

        Perhaps with inflation back, that is prudent. But for the low-inflation era of the past three decades, I don’t think it was good for society.

        Wall St and the PTB make a lot of money by encouraging debt. EVERY time the system eventually collapses, it is bailed out by the government (aka the taxpayers). So why should they not encourage reckless debt? They know they will be bailed out, and the public is too ignorant, so they don’t need to fear the wrath of angry mobs. In any case, between the government and their gated world, they are safe :)

        The Savings and Loan Scandal. More recently, the 2009 Financial Crisis. Those at the top made HUNDREDS of MILLIONS peddling subpar loans. But they did nothing ILLEGAL. Did anyone go to jail while the enlightened one occupied the White House? No. Anyone pay any fines? No. They did just fine. And the bailout was “to save the economy”

        Financially “free” individuals who live within their means–many of us are simply small boats going against a big tide of debt that, combined with other idiotic policies, is going to send us into the rocks.

        I commend Mr. Posky for this and several of his other thought-provoking pieces.

        • 0 avatar
          Lie2me

          I agree, but I can only look after me. Like I said it took me a lifetime to get here and when you’re looking at your final step being retirement the LAST thing you want is ANY debt. People who get mortgages and 84 month car loans in their 50s and 60s either have great jobs that they won’t retire from or they’re nuts and God forbid any health issues sideline you, you’re sunk

          I also kind of get off going into a car dealer, deciding on the right car and then whipping out the checkbook without going through the finance manager’s grinder

          • 0 avatar
            jalop1991

            A mortgage is, or can be, a financial instrument inside a well-planned strategy. It isn’t automatically bad.

            I have 75+% equity in my house. I let the remaining 25% be on a 3.5% mortgage that I got 5 years ago. I didn’t have to do that–I have the cash to pay it off tomorrow. But I chose not to.

            I can retire in 7 or 10 years, whatever I want–and in retirement, maybe I will pay it off. Or maybe I won’t. That 3.5% is significantly–SIGNIFICANTLY–less than what my money has made over the past 5 years. Why in the world would I leave interest money on the table just so I can say I have ownership in my home, especially when I *can* have said ownership at any moment in time??

        • 0 avatar
          FreedMike

          Debt isn’t the problem – it’s a tool if you use it intelligently.

          The problem is irresponsibly acquired debt. I’m in the lending business, and have been for 20 years. I’ve seen untold hundreds of people buying stuff that left me scratching my head. Our job isn’t to judge whether people’s lending needs make sense to us – it’s to figure out whether they can repay the loan or not.

          There’s only so much lenders can do to regulate borrowers’ responsibility.

          • 0 avatar
            jalop1991

            “Debt isn’t the problem – it’s a tool if you use it intelligently.”

            Of course it is. Lie2me is ignorant of why, and ignorant of the fact that he is ignorant.

            Him and this article each scream the same craziness that’s at places like Jalopnik.

          • 0 avatar
            Arthur Dailey

            @FreedMike: Exactly. How many successful entrepreneurs did not originally take on debt? Mortgages are generally a ‘good debt’.

            Investing cash flow into a retirement plan, earning tax returns/credits based on those contributions and reinvesting them generally creates more net wealth than paying off a car loan earlier or paying cash for a car. Remember that a car in normal times is a depreciating asset.

    • 0 avatar
      jalop1991

      Do what I did: beat the guy up for as low as he’d go, then have him find 0% financing from the manufacturer.

      If you can buy the car outright, why not let the mfr hold the paper while you hold the money and dribble it back out to him?

      I find the entire premise for this article to be iffy at best. “…and customers with good credit being treated no different than those that fall into the subprime category”–that’s complete BS.

      • 0 avatar
        Scoutdude

        “…and customers with good credit being treated no different than those that fall into the subprime category”–that’s complete BS.

        No it isn’t BS, unfortunately there are dealers that will quote sky high rates to every customer and some people bite. I’ve had it happen to me and I said what kind of highway robbery is it and they said well that is what someone with your credit score typically can get. Which was total BS since my wife and I had and still have excellent credit scores and I had already checked with my credit union and knew I could get a rate that was less than half of what their first quote was. Of course they quickly said well we can do better but I told them they blew their chance with that first quote.

  • avatar
    Urlik

    Color me “not surprised” that people in general are exceptionally stupid with their money. I’m old enough now that I will probably always pay cash for cars from now on but in the past I always put 1/3 down and never took a loan longer than three years then kept the car for a minimum of 8 years.

  • avatar
    Land Ark

    I’ve been out of the auto industry routine for just about a year. I haven’t had to make a payment since I sold the Lexus I was leasing. And since then the industry has certainly done their best to keep me out, despite being a willing buyer right now. But, not at the current prices and selection let alone the financing games.

  • avatar
    el scotto

    One of my credit cards had like a 96$ balance. NBD, then I read further: Making Minimum Payments will pay off this balance in three months and cost an additional 94$ in interest. Too many only look at the minimum payment and don’t realize they’ll ALWAYS have a minimum payment.

  • avatar
    jkross22

    If someone needs a car, they first need to understand the purchase process, negotiation, getting a loan, terms, etc.

    Many people simply don’t do this, so they’re now a statistic.

    A few years ago when my kids were in grade school, I offered to teach a junior achievement class that reviewed wants vs needs, how business works, what happens when you buy something, etc.

    More people need this psych 101 lesson – just because you can, doesn’t mean you should.

    • 0 avatar
      Urlik

      The military gives it to every new member, it doesn’t help as much as you’d think it would.

      • 0 avatar
        theflyersfan

        It’s interesting you say that. I recall reading not that long ago about the predatory practices of dealers near military bases and training facilities and centers. Basically you have a 18-19 year old soldier who is out in the world for a first time and they just got their first check and/or bonus. They, not having the life experience, want their first set of new wheels. And they are preyed on by unethical dealers and I recall reading that the repo rate is high. All of this is 2008 all over again and it’s going to be carnage when the bubble bursts.

        • 0 avatar
          Urlik

          Yup, they’ve even warned the troops about them but still they go there. Even seen them so bad they were able to declare them off limits and then they closed up shop and started a new one and the cycle began anew.

          • 0 avatar
            theflyersfan

            Being an ex-government employee with work all over the world, I would drill it into their heads to finance something reasonable with the great rates through their branch’s credit union. I did that when I had to finance an overseas vehicle purchase for a year and they couldn’t be beat. Please don’t go into the land of fake smiles, shady finance managers and a bunch of emotions without having shopped the CU.

        • 0 avatar
          Scoutdude

          Yup lots “guaranteed easy financing for military” around bases and it isn’t just cars. Lots of those dealers around the bases are BHPH glorified rent a wreck lots. When it is time to ship out many just take it back to the dealer who hopefully takes the car back w/o any additional charges and then turns around and collects $X per week from the next guy until it is his time to ship out.

        • 0 avatar
          A Scientist

          Was in the Navy 20 years ago, can confirm. Just outside of almost every major military base you’d see shady-ass used car dealers. A good way to identify the worst of the worst was they would have a giant sign out front by the road that read “E1 AND UP!!!”. I knew a couple of poorly naive young guys that got hosed on crappy vehicles with loans as high as 20% even back then :( It was so bad that they did enact mandatory classes for new sailors on base so they could get educated on the process. Some listened, others….didn’t

        • 0 avatar
          FreedMike

          And you think those 19-year-old soldiers are gonna spend that bonus on a pu$$y-ass Civic? Nope. They’re buying trucks or something like a Mustang that cost two or three times as much.

      • 0 avatar
        Art Vandelay

        I’m at Fort Hood doing some work right now. The 27 percent Challenger is a right of passage here.

        They give you the training. That just tells you where to go and make your bad decision. I was there too…back in the 90’s. Fortunately it was a Euro Spec E30 BMW in my case that I now remember fondly, but not because I got a screaming deal on it. A young sailor and his reenlistment bonus are soon parted too.

  • avatar
    carcomment

    I’ve rarely read a less thoughtful piece. Consumer Reports starts with a conclusion and discards any information contrary to the preordained conclusion. Of course, reality is different. First people are buying cars, actually trucks, that they simply can’t afford. A 25 pct interest rate is what it costs a barely qualified person to finance a vehicle they simply must have to compensate for the losses the lender knows they will take from the pool of all marginally qualified buyers. Blame the lender for the consumers lack of self discipline-of course not the buyer. Second, car prices driven by feature bloat and regulatory mandates eg back up cameras are driving the price of a new vehicle well beyond the grasp of most average workers. If you are paying more than $1,000 per month for a vehicle other than one that generates your livelihood, you have lost the plot. And I stand by that, no matter how much you earn.

    Dealer practices are also a factor. But here again if the buyer does not choose to get educated or buys something they can’t afford, the failure rests with the buyer. 20 days of euphoria followed by 6 years of misery. Just like a heroin addiction.

    • 0 avatar
      Urlik

      There’s no doubt that CR blames the lenders for providing what the customer wants. They hate freedom of choice for consumers to make bad decisions and think the government should protect them.

      • 0 avatar
        probert

        The government should protect them – regulating predatory practices is something government should do. Do you just throw the word freedom on somewhere and call it the American way.

        • 0 avatar
          Art Vandelay

          Yes. Why should anyone bear responsibility for their own decisions…be it the ones that got them that 540 beacon score or trying to add more debt.

          Don’t like the rate? Don’t buy the car. And yes, I’ve been in the 540 credit brigade in my life. Know whose fault it was? Mine.

        • 0 avatar
          IH_Fever

          I hate con artist dealers too, but if someone needs the government to make sure they don’t personally make a bad decision, they’re already lost.

    • 0 avatar
      SCE to AUX

      @carcomment: Agreed.

      I overheard someone talking the other day about how her husband can’t afford his medication for a common health condition, yet they drive a Denali.

    • 0 avatar
      boowiebear

      Consumer Reports has never met a problem they do not want Big Government to fix. They are socialists masquerading as consumer advocates.

    • 0 avatar

      It can be both bad actors and not so smart (or sometimes overly optimistic) people. The author of the Consumer reports details a bit how a number of people with average credit got much worse terms then people with worse credit, basically because the dealer thought they could get away with it. It’s not new but it has gotten more extreme. Payment buyer comes in you max out the APR and negotiate down and try your hardest to make sure they don;t read what their signing. I’ve said it before and I’ll say it again, I have known a bunch a lot of people that have had BHPH cars and I haven’t had a single one tell me what their rate is when I ask.

      The last car I bought you could tell the dealer was used to hiding the rates. I had come in pre approved from my credit union, and they matched the APR, and the paper work said as much. But when he had me sign he had the paper stacked and shuffled so you couldn’t read the APR unless you really moved things around instead of just signing where he pointed. I did go thru and check but if you were just happy to get a car you would have never seen it.

    • 0 avatar
      jalop1991

      “I’ve rarely read a less thoughtful piece. Consumer Reports starts with a conclusion and discards any information contrary to the preordained conclusion.”

      Agreed, 100%. There’s no question about this.

  • avatar
    ajla

    No one forces someone to take out a giant loan but buying a vehicle shouldn’t need to be a journey through the Valley of Wolves either.

    • 0 avatar
      FreedMike

      It isn’t, though. When you buy a car, the terms are clearly spelled out on a truth-in-lending form. It couldn’t be any clearer what the loan is costing.

      Leases are more opaque – you have to reverse-engineer the numbers to figure out what they’re really charging you – but they’re fairly straightforward as well.

      The problem children here are the ones who don’t want “affordable” vehicles. They don’t want a $20,000 Civic or $28,000 Accord to get them around – they want a $35,000 CR-V or $60,000 F150.

      If you have compromised credit, and you need a new car – and for the record, I’d say that’s reasonable because used cars carry all kinds of repair risk – your move is to buy something cheaper. That’s not what’s happening. That’s on the lenders, but ultimately, they’re not holding a gun to buyers’ heads. That 25-year-old Chad with the 590 score should be buying a $20,000 Civic, not a $60,000 Ram.

      • 0 avatar
        28-Cars-Later

        I feel as if 590 Chad should be castigated to the realm of the pre-owned until he can crack 700, but that’s just me.

      • 0 avatar
        ajla

        “It couldn’t be any clearer what the loan is costing.”

        I disagree. I just pulled out my TIL form from when I bought my Kia. It is a 28inch long piece of thin paper with I’m guessing 100 different pieces of data on it.

        People shouldn’t spend more than they can afford but it isn’t like you can’t get just as hosed when buying a lower-priced vehicle.

        thetruthaboutcars.com/2015/12/86-year-old-
        african-american-woman-charged-sticker-last-years-buick/

        “Head on a swivel, Grandma” just isn’t a philosophy I’m prescribed to.

        • 0 avatar
          FreedMike

          Maybe because it’s because I do this stuff for a living, but the TIL form is very simple. It just lists how much you’re borrowing, what the APR is (which should be interest rate or very, very close to it on a car loan as there aren’t many fees), total of payments, etc. I don’t find it difficult to understand at all.

          • 0 avatar
            tomLU86

            FreedMike, I was going to comment, perhaps you work with/in finace/legal/accounting, and it looks like you do!

            I think I’m reasonably intelligent and don’t think it’s that easy, I see why people struggle and get fleeced

        • 0 avatar
          Matt Posky

          Little picture: More people got screwed on their auto loans and cars are becoming truly expensive to own for the average joe as the economy worsens.

          Big picture: Lenders have doubled the amount of debt the public owes them on cars since 2010 and don’t even seem to be following the standards and practices that made them rich in the first place.

          • 0 avatar
            28-Cars-Later

            @Matt

            I know some of the toxic BHPH loans were being securitized post 2008, perhaps they all are now? The game seems to be Fed prints funny money collateralized against USG debt then buys securities by Wall Street proxy.

          • 0 avatar
            FreedMike

            @28:

            Assuming 590 Chad has zero repair budget (thus the 590 score), I’d say a cheaper new car with a warranty isn’t a bad move at all. The minute that used car barfs something that costs two grand to fix, Chad’s on his way to getting repoed.

          • 0 avatar
            28-Cars-Later

            @Freed

            That’s a good point.

    • 0 avatar

      Here was a bill my state took up but didn’t pass that might have helped a bit on TIL.
      STATE LEGISLATION

      sHB 5297 (2016), An Act Concerning Interest Transparency, would have required dealers to disclose dealer participation. Specifically, it would have required the disclosure of

      1. the seller’s annual finance charge;

      2. the identity of the sales finance company that offers the lowest APR and the amount of that rate; and

      3. any finance charge markup the seller imposes (i.e., the difference between the seller’s annual finance charge and the APR offered by the finance company that acquires the contract).

      The bill was reported favorably by the Banking and Transportation committees. The House did not take up the bill.

  • avatar
    Scoutdude

    I don’t have too much sympathy for a lot of these folks. It pays to be informed, to know your credit score and what kind of interest rate it qualifies you for. If you are ignorant of that you are an easy target, especially if you answer the question how much do you want to spend per month. Dealers get paid for selling a higher interest rate than the customer would actually qualify for. So once you’ve said I can spend X per month they will crank up the rate and if they can the length of the loan until that car is how much you told them you want to spend per month minus $1. Or if they are cocky $20-25 more than you said, since “you aren’t going to let $20 stand in the way of owning this car, are you?”

    Find the rates and/or get approved at your bank before hand and when it comes time to talk finance tell them “my bank is x% and if you can beat that I’ll let you write the note.

    Of course you also need to know what you can actually afford and not spend that extra $20 (per month) if you don’t have it. Unfortunately it seems there are many people who think they can live beyond their means and few who are willing to live beneath them.

  • avatar
    Imagefont

    I bought a new, well optioned car 18 years ago and paid cash.
    The end. I’m still driving it.
    Just got the A/C fixed, money well spent.

  • avatar
    ToolGuy

    “I like money.” “I can’t believe you like money too. We should hang out.”

    – Frito

  • avatar
    dal20402

    We are just not good at consumer regulation in this country. A reasonable regulatory scheme would establish boundaries of exploitative behavior and let people make deals within the boundaries. Instead we hyper-regulate unimportant things and yet let the exploitation proceed unimpeded. But I guess it’s really no fun for bankers to live the solid upper-middle-class lifestyles they used to when there are Hamptons mansions and $5M legacy admissions slots for their kids to be bought.

    • 0 avatar
      Urlik

      Usury laws exist in many states. You want them to also legally limit how upside down you can be?

      • 0 avatar
        28-Cars-Later

        A cap on loansharking would be nice. Fed pays ZIRP, they charge 25%? These ****ers would have been beheaded in most periods of history – but there is still time to make that right!

      • 0 avatar
        dal20402

        Yes. Yes, I do.

        I also want:

        – clear disclosure of major terms and financing cost
        – a ban on loan terms that exceed the expected useful life of the car
        – penalties with teeth for lenders who misreport underwriting information internally and/or to loan buyers (which happens all the damn time)

        • 0 avatar
          28-Cars-Later

          Preach it!

        • 0 avatar
          FreedMike

          @dal:

          1) The financing statements on car loans do offer clear disclosure of terms and costs.

          2) Who decides how long the car lasts?

          3) Agreed 1000%. And that includes slamming minorities into loans with higher interest rates than their financial profiles justify, which happens ALL the time. CFPB tried to address this kind of abuse, but it was gutted under the former administration.

          • 0 avatar
            Scoutdude

            1) The problem is most consumers don’t see that until they are signing everything Of course many people don’t take the time to actually read it, they just want to drive their vehicle home sooner, rather than later.

          • 0 avatar
            dal20402

            (1) From responsible lenders, they do. I spent some time volunteering at a consumer clinic and, well, there are lots of lenders who don’t meet the basic standards.
            (2) I don’t care. Find a number. It can be a bit arbitrary. The point is to avoid the 84-month loan on the ten-year-old car.

          • 0 avatar
            FreedMike

            @scoutdude:

            Agreed, but it’s on the consumer to make sure the documents are read and understood.

            @dal:

            Lenders do have restrictions. I just bought a used car for my kid, and I took out a small loan on it, which my kid is paying back (wanted a positive loan on her credit, and teach her how to pay a loan back). The car’s an ’07, and the max the credit would go was 36 months (we did 24).

          • 0 avatar
            Scoutdude

            @Freed Mike, Yes the consumer should read things before they sign on the dotted line, but fact is many don’t and many wouldn’t understand it, if they did take the time to read it. Financial literacy like common sense is at an all time low.

          • 0 avatar
            28-Cars-Later

            @Freed

            I know you were shopping for a while with her, what did you get?

            Oh and on the #2, just put me in charge. I will regulate like ol’ Nate Dogg and Warren G.

          • 0 avatar
            dal20402

            Freed – again, you are a very knowledgeable credit consumer and I’m sure you’re interacting with lenders that follow the rules and establish reasonable underwriting practices for themselves. There are a lot of consumers out there who are not.

          • 0 avatar
            FreedMike

            @28:
            Found a 2007 Saturn Ion, 72,000 miles, great condition. Paid a bit too much but everything’s too much these days.

            @scoutdude, dal:
            Yep, people should be financially literate. But they aren’t. That’s not something you can legislate per se. We’ve tried in mortgage financing to more or less require borrowers educate themselves, but who knows if they do?

          • 0 avatar
            28-Cars-Later

            Nice to hear, those polymer panels hold up well in the winter road salt.

    • 0 avatar
      28-Cars-Later

      Bingo!

    • 0 avatar
      Scoutdude

      We also aren’t good at teaching financial literacy which certainly results in people getting taken advantage of and winding up with more month at the end of their money. If they do find they have money at the end of the month many choose to “reward themselves” and make sure it doesn’t burn a hole in their pocket.

  • avatar
    pmirp1

    Well at least nowadays cars are not depreciating. So if you buy a large SUV, anything Honda or Toyota, any truck, any American pony car or Corvette, you won’t be upside down.

    Just stay away from any GM front wheel drive SUV, gimmicky German or green full electric nonsense.

  • avatar
    Add Lightness

    2 years ago I read a ad for RVs and it mentioned 240 month loans. I figured it meant 24 months and went over to the RV dealer to tell them there was a typo.
    They told me no, about 1/2 the buyers finance a new RV for a 20 year amortization.

    …..OMG

    • 0 avatar
      ajla

      Luckily RV quality has never been better so a 20 year loan is all good.

    • 0 avatar
      Imagefont

      A friend of mine bought a single axle pull behind camper trailer several years ago now. The terms offered were for 120 month financing. In his case he paid off the trailer 6 months after he bought it but I was stunned at the notion of potentially paying so much interest on a depreciating asset. You should see the loans terms for a luxury power boat. Talk about a hole in the water.

      • 0 avatar
        A Scientist

        Yep. Bass boats too. Go to Bass Pro Shops and you’ll see ridiculously low monthly payments advertised for $30k+ boats. Read the fine print on the sticker and you’ll see that that payment is made possible by a 140-month loan at ~18% interest *shocked face*

    • 0 avatar

      I have always been amazed at this but, in general the default rates on those loans aren’t crazy high. I think it’s because the payments are fairly low to income in most cases so people just keep paying it. When I did sold boats the lender we used mentioned about half the loans were paid off at least a year ahead of schedule. I know many we saw were paid off in 4-5 years on 10 years.

  • avatar
    theflyersfan

    Growing up, my Dad always tried to drive in sound financial planning and spending. Pay cash as much as possible and if you have to use credit, try to make sure you have enough coming in to pay it off on 1 to 3 years (for a car for example). With my car purchase, I was able to get the price down by financing with a specific bank. I think it was around $1500-2000. So I took them up on it, made a few payments to show up on my credit report, and then paid it off with only a $10 fee.
    I get that the average vehicle price is over $46000 and that credit is needed. But it’s sheer financial insanity and stupidity to finance a $70000 truck for 84 months when a $45000 truck for a shorter term will work fine. Combine this with an overheating housing market and I really see a disaster soon.

    • 0 avatar
      CKNSLS Sierra SLT

      theflyersfan

      Personally I would never finance a vehicle for 84 months, but transaction prices being what they are would make a three year loan payment very high. And 12,000 miles a year for 8 years comes out to 96,000 miles. A new car should last that long with regular maintenance and tires. If you drive more miles and wear it out before it’s paid for-then yes you are an idiot.

      • 0 avatar
        28-Cars-Later

        Then get one more year out of it before something expensive breaks.

        • 0 avatar
          87 Morgan

          Cars last significantly longer than they used to.
          I DD a 05′, my newest car is an 08′. Neither gives me any issues. One kid drives an 02′ Honda with 190k, no issues and his brother a 99′ Solara with 98k which arguably is a Unicorn as it looks, drives, and smells brand new. Either way, you don’t need a car that is 5 years old or newer anymore.

      • 0 avatar
        FreedMike

        @CKNSLS Sierra SLT:

        I’m not sure it’s irresponsible per se to do a 84 month loan. Let’s say you can afford the 60 month payment comfortably and consider that the “full” payment, but decide to do 84 months in case you have a month you want to save a few bucks. In that case, you pay the 84 month loan off way early, save a ton of money on interest, and get some payment flexibility. Plenty of folks like that out there.

        I’d be more concerned about the folks who have to do the 84 month loan to afford the payment. In that case, I think it makes more sense to just lease soemthing.

        • 0 avatar
          sgeffe

          I refied my car loan down to around $425 minimum. (This was after Honda Financial jacked up their Accord rates mid-2019, two weeks before the car arrived. The dealer knew what rate I was after, but they didn’t get it down as far as I would have liked. Perhaps they helped themselves to a quarter-point, who knows! I knew I would refinance after a year when I found out that the note they got was through a bank where the plastic plants in the lobby are more intelligent than the people both behind the counter and in the front office!)

          I can pay $600/month, and I do. So as I have with my last two vehicles, I’ll pay it off at least a year early. But by the same token, if something happens, I should be able to handle the minimum obligation. I also make sure I put enough down that I’m not going to end up in the bucket!

    • 0 avatar
      Lie2me

      “But it’s sheer financial insanity and stupidity to finance a $70000 truck for 84 months when a $45000 truck for a shorter term will work fine.”

      Maybe now we know why so many are excited about the new Maverick ;-)

      • 0 avatar
        Lou_BC

        @Lie2me – I wonder how many lot lizards er sales staff will try to upsell you to an 80k brodozer?

        They’ve tried that sh!t on me every time I’ve gone in to purchase a base model truck.

        • 0 avatar
          sgeffe

          Did you try talking to the fleet manager? I’d do that if I was after a vinyl-floor stripper model. Refrigerator white just like the electric company? See if Ford’ll throw one more on the pile; I’ll bring a check from the bank, whether loan or cashier from my account!

          • 0 avatar
            Lou_BC

            @sgeffe – fleet managers won’t talk to you unless you have a fleet number.

          • 0 avatar
            sgeffe

            Hmm…didn’t think of that.

          • 0 avatar
            Lou_BC

            No worries. Valid point though. Some of the local dealers in my town will occasionally “over order” fleet spec stuff but that’s pretty rare and is typically a bate and switch approach. They can then legally advertise some super low price and then try an upsell when the customer comes in to look at it.

  • avatar
    Ol Shel

    But the auto industry always seemed so honest and kind…

    A former boss always shook his head and wondered what it was about the car business that attracted such a sleazy crowd. He was so
    right.

    • 0 avatar
      tomLU86

      Why is the auto industry so sleazy? Two thoughts:

      What other consumer good do you buy from “retailers” (new and/or used car dealers) that enjoy so many special treatments, courtesy of their state laws?

      What other consumer product generates such large revenues for state and local government (Sales tax, registration fees)?

  • avatar
    N8iveVA

    Uneducated consumers is nothing new. Predatory loan practices is nothing new. Predatory car sales is nothing new.

    The problem is societal. We’ve raised generations that think they deserve more than what their parents had. That their parents or someone will bail them out. That filing for bankruptcy is no big deal. Combine that with social media making everyone feel bad that they don’t have the newest loaded luxury AWD blob that their Facebook friends just bought and people go out looking for the instant gratification of buying stuff.

  • avatar
    Mike Beranek

    Too many people filled with ego and hubris. It sure is cheaper to buy an old car and learn how to fix it yourself.

  • avatar
    MitchConner

    Our schools are so bad we now have millions who are financially illiterate. Look at the dopes who ran up six figure debts on college loans while they took 6 years to get a useless degree. Now they want a government bailout. Think they know how to buy a car?

  • avatar
    MitchConner

    Our schools are so bad we now have millions who are financially illiterate. Look at the dopes who ran up six figure debts on college loans while they took 6 years to get a useless degree. Now they want a government bailout. Think they know how to buy a car?

  • avatar
    87 Morgan

    As a fella who has spent his entire career in and around the retail auto business, why does it always fall on the dealer?

    Is it the industries fault a significant number of buyers demand, and I am serious with the term demand, a car they cannot afford?

    I have noted it here in the past. My standard answer to people who are poor and need a car is a Camry. Yet, those same people will always start with why they need AWD so on and so forth. Instead of buying a quality pre-owned Camry they buy a not so quality pre-owned Jeep/Hyundai/Kia/insert your over priced mid-size CUV here for 10k more and can’t afford. Worse yet is when the same person insists they must have a BMW/Audi/MB, you know how it ends.

    The retail automotive landscape has changed dramatically in the last 10 years. Plenty of large multi-state retailers who do business in an honest and upfront fashion are available to choose from, we all know what a sleazy car lot looks like and if a consumer chooses to go there and buy a car, they suffer the consequences.

    • 0 avatar
      ToolGuy

      The dealers are clearly the victim here. (I am so very sorry about all those degenerate customers putting you in this situation.)

      General Question: Why does it never rain in car commercials? [Windshield wiper commercials yes, car commercials no.]

      • 0 avatar
        Lie2me

        ^ Lol ^

      • 0 avatar
        87 Morgan

        Tool Guy..
        https://www.youtube.com/watch?v=NPigcNxXVog

        Above is a great car commercial with rain!

        Look, I am not trying to claim the dealers are the victims in any of this. I think it would be fair to acknowledge that a lot of the soaring vehicle debt is a self inflicted wound on the consumers part, they make the choices to buy or not. A car dealer is not also a financial planner trying to dispense quality advice on how spend and invest dollars, they just want to sell the crap on their lot before the price craters. Just as McDonalds is not a corporate entity that dispenses quality advice on healthy eating choices. Eating too many McD’s fries and Big Macs is not a quality life choice but CR is not writing articles about how the fast food industry is the reason so many people are over weight.

    • 0 avatar
      Scoutdude

      Well the reality is that a lot of dealers make a lot of money bumping the rate on credit worthy consumers that don’t know any better. Yes there are dealers that won’t do that but unfortunately it is hard to tell which dealer is going to screw you and which one isn’t. Word of mouth/reviews are of limited use because many people who are clueless enough to get screwed are also clueless enough to not realize they were screwed.

      Then you have the dealers that will lie on the application and generously round up income and round down expenses and the buyer things that is great because it allowed them to get a loan for a vehicle they couldn’t afford. Again they are happy they got screwed because they didn’t realize they got screwed, at least until later.

      • 0 avatar

        I think the bumping thing is something not a lot of people know about. I learned that when I was in my 20’s selling boats and we could tag 1-1.5% on to the rate for yourself.
        Back then I had a customer who was the finance manager at a Lexus dealer, if you want to know their profit center was both he and his wife had demo LX’s and he had a 120k boat. The service and sales managers both notably had ES demo’s.

      • 0 avatar
        Lou_BC

        @Scoutdude – very true. The local Dodge/Jeep/Chrysler dealer was bad for fudging. The local “repo” lot was always full of their products. Eventually the Principal and the head of sales were charged with false and deceptive advertising and sales practices. The Principal got lucky because dad and uncles owned a lot of dealerships so he “left under mutually agreeable terms” and wasn’t allowed back into the auto industry. The sales manager hadn’t dribbled out of the end of the right penis and therefor wasn’t so lucky.

  • avatar
    Margarets Dad

    “We’re all being swindled.”

    I’m not. But I have outstanding credit. And I don’t really need a car for anything other than weekend fun (NYC dweller), and don’t buy more car than I need. And I also don’t care about owning what’s cool. I have a 2016 Focus with the 3-cylinder Ecoboost engine and 6-speed manual that I bought in February with 32,000 miles for $10,000. The difference between the cost and the value of my trade was about $6,000. Was going to pay cash but Ford offered 1.5% financing over 36 months. So why shell out cash when Ford is basically giving me free money for three years and I can keep that $6,000 in the mutual fund where it’s typically earning 8% per year?

    Granted, a 3-cylinder, MT Focus is not for everyone, but it’s a pretty fun little car, inexpensive, and very good on gas. Even so, in normal (non-Covid-inflation times) it’s hard to believe that 90% of the population couldn’t find a lightly used, reliable vehicle that basically met their needs for $10K. People are up to their eyeballs in debt in most cases because they’re not smart about money and they’re buying too much car–or more concerned about their image than in buying something that will get them reliably and cheaply from point A to point B.

    My parents were of the Depression generation and they were frugal. They paid cash in the ’70s and ’80s because interest rates were so high. But now? With interest rates where they are? Take the cheap loan and sock that money away in a mutual fund or 401K.

    • 0 avatar
      ToolGuy

      “Why can’t you be a financial genius like Margaret’s Dad? Margaret is soooo lucky.” – Hannah

      “You know dear, she’s right. By the way, what is all this crap from Amazon?” – Hannah’s Mom

      Muttering to himself, finding six new ways to get the coil spring compressor jammed in the car along with his nice new 100 tooth ratchet, “NOW they tell me they wanted the discontinued C346 with the 1 liter engine? Really?” – Hannah’s Dad

    • 0 avatar
      JMII

      “People are up to their eyeballs in debt in most cases because they’re not smart about money and they’re buying too much car–or more concerned about their image than in buying something that will get them reliably and cheaply from point A to point B”

      +1

      I know guys at work driving brand new, top of the line full size trucks. I asked what they haul or tow and the answer is “nothing”. About every two years they get another shiny new truck. I can only imagine what their payments are. These are younger guys with kids that should be saving for a rainy day.

    • 0 avatar
      Lie2me

      “My parents were of the Depression generation and they were frugal”

      How old are you, your parents, if still alive, would be close to 100?

      • 0 avatar
        Margarets Dad

        I’m 49, but what business is it of yours?

      • 0 avatar
        Lou_BC

        @lie2me – “My parents were of the Depression generation and they were frugal”

        A quick google says the Great Depression was between 1929 to 1939. If they were born in 1929 they’d be 92. Born in 1939 they’d be 82.

        My parents lived through the Great Depression. They were 10 at the start and 20 when it ended. My parents are both deceased.

        So yeah, it sets of my bullsh!t meter too.

        • 0 avatar
          Margarets Dad

          It strikes you as bullsh*t that someone born in the early 1970s could have had a mother born in the 1930s? My mother was born in the mid 1930s and was 35 when I was born.

          Either you can’t do arithmetic or know nothing about human reproduction. Probably both.

          • 0 avatar
            Lou_BC

            @lie2me called you out and you went full defensive butt hurt. You also didn’t sound all that credible when making that claim. So…yes…it set off the bullsh!t alarms.
            Okay….boomer. feel better?

          • 0 avatar
            Margarets Dad

            Lou,

            “Called me out”? On what, genius? That my parents were children of the Depression, which is 100% true?

            You’re the one who sounds defensive, as you should be.

          • 0 avatar
            Lou_BC

            “That my parents were children of the Depression, which is 100% true?”

            You said I didn’t know math. Ok. You said you are 49 and your mother was 35 at your birth. That means she was born in 1937. That would make her “3” T-H-R-E-E years old at the END of the Great Depression.

            Technically you weren’t lying when you said, “that my parents were children of the Depression”

            BUT

            “My parents were of the Depression generation and they were frugal.”

            How does a T-H-R-E-E year old learn frugality during the Great Depression?

            Once again, “So yeah, it sets of my bullsh!t meter too.”

            Now run along and go polish your 3-cylinder, MT Focus.

          • 0 avatar
            Arthur Dailey

            My parents were both born during the Great Depression and raised during it and WWII. Neither of their parents ever owned cars. Public transit was cheap, easy and reliable. My father was one of seven children, my mother one of five. My father’s family eventually bought a 2 bedroom detached bungalow of maybe 1,000 sq ft.. The boys slept in the unfinished basement. My mother’s family had a 3 bedroom semi, slightly larger. Boys in one bedroom, girls in the other. Both had one bathroom.

            Neither had a television until the mid 1950’s. Neither had automatic washing machines or dryers and certainly did not have a dishwasher.

          • 0 avatar
            28-Cars-Later

            @Lou_BC

            I gotta give the man props for the MT, rest is on point.

          • 0 avatar
            Lou_BC

            @Arthur Dailey – this dude has me testy because my parents entered the Great Depression at 10 years of age and exited at 20 years of age.
            My mom had it easy because she was the youngest daughter of a big family. The family farm was in Quebec with zero drought.
            My dad on the other hand was the oldest boy in a large family. The family farm was in the dust bowl era in Saskatchewan. He got pulled from school to keep the family from starving and losing the farm. He was a bright kid being groomed by the Jesuits to become a teacher. 13 years old running teams of horses for the department of highways, picking tobacco in southern Ontario, humid factories in the Canadian equivalent of the rust best. He even had stories from ancestors about the Riel Rebellion. They did lose the family farm. That always bothered him.

    • 0 avatar
      ajla

      I assume you still spend your money on things you enjoy?

      I don’t believe there is any moral failing to someone buying a nicer new car and I don’t think it’s necessarily a moral virtue to drive a Toyota Echo until the Sun goes nova.

      The problem isn’t someone bought an Audi A5, it is someone buying an Audi A5 when they can’t afford it.

      • 0 avatar
        Lou_BC

        “Toyota Echo until the Sun goes nova.”

        You mean Chevy goes Nova?

      • 0 avatar
        Margarets Dad

        Ajla, of course. As I said, I live in the city and don’t need a car to get to work or shop. For me, having a car is a luxury, something that I enjoy rather than need. I don’t see any moral failing in owning luxury goods you enjoy and can afford.

    • 0 avatar
      Matt Foley

      @Margaret’s Dad:

      Has the littlest Ecoboost been reliable thus far? How long do you plan to keep it? I’ve always been intrigued by the 1.0, but am a little leery of the oil-bathed timing belt that’s supposed to last forever.

      • 0 avatar
        Margarets Dad

        Only had it 8 months but it’s been great so far (except for the purge valve that crapped out b/c Ford, in its cheapness, only recalled the valve for the 2.0 engine and not the 1.0).

        But otherwise the engine is very enjoyable and surprisingly smooth. Cumulative mileage has been 38 which, given the amount of time I spend sitting in traffic, is fantastic. Only have 44k miles now, but I definitely expect the car to last to at least 150k.

      • 0 avatar
        jack4x

        @Matt Foley,

        I have a Fiesta 1.0 with 75K miles, and a friend of mine has one with 130K or so. Both of us bought them new. Other than some smallish cooling system issues (known problems with the motor), they have been reliable for both of us. He’s planning to change the timing belt himself at 150K.

  • avatar

    It appears that the gradual movement away from moral behavior by society as a whole is making one aspect of that move exceedingly evident – lack of concern/compassion for others with the focus being primarily on ‘me’.

  • avatar
    deanst

    Anyone over 40 can look at today’s cars and realize that even a Kia Rio comes with more amenities than cars in their childhood. There is no “need” to get today’s overpriced monstrosities. If you can’t fit a 4 year loan at 10% of your income, get something cheaper.

    • 0 avatar
      SCE to AUX

      “4 year loan at 10% of your income”

      Not a bad guideline. Although I’m fortunate to have no debt, even that amount would make a dent.

      It’s crazy that banks will qualify people for so much more, and customers just lap it up.

    • 0 avatar
      CoastieLenn

      @Freed, Can you elaborate on what you mean by this? Do you mean people shouldn’t be buying a car that costs more than 10% of their income or financing it over

    • 0 avatar
      CoastieLenn

      @Freed, Can you elaborate on what you mean by this? Do you mean people shouldn’t be buying a car that costs more than 10% of their income or financing it over 4 years? That means that someone making 100k per year shouldn’t buy a car over $10K.

      • 0 avatar
        Scoutdude

        It was Dean that said it first but what I read is that you shouldn’t spend more than 10% of your income on a car payment and you shouldn’t sign up for longer than a 4 year loan. That is a ~35k loan at 6%. Limiting your car payment to 10% of your income is a good idea if you want to reserve some of your DTI for revolving and other credit, if you want to get a mortgage or even rent a place to live with some landlords.

  • avatar
    FreedMike

    Automotive debt is out of control because automotive prices are out of control, and that’s driven by the “I GOTTA GOTTA GOTTA HAVE A TRUCK OR SUV” thing.

    The most popular vehicle in America is a Ford F-150. For grins, I checked one out not too long ago. Cheapest one I could find on the lot had had rubber floormats. They wanted well over $40,000 for it. Same ridiculous pricing on the other best-selling trucks from Chevy or Ram.

    Would you rather have a crossover? Over at the Toyota lot, you could buy a $35,000 RAV4, or a $20,000 Corolla that rides on the same damn platform. Guess which vehicle Toyota buyers just can’t get enough of?

    Meanwhile, inexpensive new vehicles are all certainly available. At the bottom end of the market, Hyundai can’t unload $17,000 Accents, but it sure can sell Tucsons that cost twice as much.

    It’s very simple – people are incurring way too much debt to buy way more car than they need.

    • 0 avatar
      JMII

      I remember when the cheapest vehicle on the lot was a stick shift truck. Back in the 80s when I was in HS many of my friends had Mazda B2200 pickups because they were dirt cheap. Plus as a broke teenager a mini-truck was good odd-jobs type vehicle: deliveries, lawn care, pool boy, etc.

      The cheap basic sedan is gone, nobody buys that anymore and thus the OEMs stopped making them. Remember when Ford canceled the Focus and told buyers they should get an Escape instead. This is one reason why Ford’s new Maverick right-sized truck should be a hit. Its cheap, gets great mileage and looks like a baby F150. They key is that last part – if a vehicle doesn’t look it can survive a zombie attack people don’t buy it. Sleek, small and sporty are gone (I miss hot hatches) these days everything has to be oversized, lifted and trimmed in plastic with a blocky rugged look. Such vehicles aren’t cheap… and apparently people will go into massive debt to have one.

  • avatar
    Art Vandelay

    Stupid

  • avatar
    deanst

    The consumer reports “investigation” is a sad joke. The essence is that people who shop around for a loan may get a lower rate than offered at a dealership. Is this really news?

    They also claim:

    5. Income Verification Was Rare

    6. Delinquencies and Repossessions Were Common

    You may be surprised to learn that income verification was done on 4% of loans and delinquencies/repossessions occurred on 5% of loans. So 4% means rare in consumer reports world, while 5% means common. I have a lot of respect for some work by CR, but this work was done by a moron.

    • 0 avatar
      FreedMike

      Agreed. I think the real culprit here is the run-up in automotive prices, which is driven by consumers buying vehicles that cost way too much. In other words, it’s their readership’s fault. But they have to blame someone.

      • 0 avatar
        MoDo

        Its also stakeholders demanding higher transaction prices, they have obliterated anything decent from GM/Chrysler/Ford. $90,000+ for a SUV or pickup is insane and its these loans that promote it

  • avatar
    Scott_314

    My neighbor bought a new truck. He said the dealer basically lied on the finance application, throughout the whole form.

    What’s your income? “X”. He puts in Y.
    What’s your monthly expenses? “X”. He puts in Y (much less).

    Then when neighbor reviewed and said “there’s lots of mistakes here!”, dealer says “oh, I’m just trying to get you the best rate, don’t worry these are minor, we already entered the numbers it will take an hour to update it, might not get approved, you and I know the payment is fine, let’s just get it done!”.

    I’m sure this will end well.

    • 0 avatar
      JMII

      Not exactly the same but when we refinanced our home the bank’s numbers showed we could afford about 2X what we were asking for. Apparently food, utilities and other living expenses were not things the bank cared about. An uneducated consumer would have taken that loan and partied like a rock star. We didn’t. Our house will be paid off early by a full decade (20 instead of 30 years) due to only borrowing what we needed. I have no idea how people deal with $600 a month car loans but no money down and easy financing makes such deals common place.

      • 0 avatar
        Lou_BC

        @JMII – I was remortgaging and the loans officer screwed up and added one too many zeroes. It still went through. I caught the error and was “WTF”? They replied that my loan approval was based on the percentage of my gross income. No wonder why people get screwed.

  • avatar
    Jeff S

    @Margarets Dad–My parents as well were raised in the Depression, both have been dead for a number of years. Both my parents paid cash for our new cars and the only debt they had was a mortgage which they paid off. My siblings with the exception of my older brother who is also deceased paid cash for their vehicles. Financial Literacy should be taught in schools starting before high school since many parents who should be teaching their own children have little or no knowledge about it. Might make Math a little more relevant to most kids if they use it to create a budget.

    • 0 avatar
      Margarets Dad

      My folks paid cash in the 70s and 80s, but remember that’s when interest rates were thru the roof. Makes less sense now when interest rates are so low and you can invest that money instead.

      It’s important to remember how central financing is to dealer profit these days. If you walk in telling them you’re paying cash, their attitude is “screw you” and they’ll refuse to deal on anything, because you just bypassed their major revenue stream. (It’s also easier when you finance for them to make it all about the monthly payment, which makes it possible to load a bunch of crap on you “for just a few extra dollars a month” that you probably don’t need, and they love that.)

      The best thing to do with interest rates so low is to call your bank/credit union (open a small credit union account if you need to) in advance, then get a quote from them before visiting the dealer. Then when the price has been decided and you’re being sweated out in that little room discussing financing, say, “my credit union is giving me x% over four years. If you can match that, great, if not, we’ll be financing through them.” They hate outside financing for a couple of reasons: They lose out on that profit, but more importantly, it means the deal can’t get done right then and there.

  • avatar
    Kendahl

    The only people who can fix this are the victims, that is, the consumers being taken advantage of by high interest rates and sticker prices. Even if you want a new or newer vehicle and can afford one under today’s conditions, hang onto what you have as long as possible. Repairing it, until it becomes a basket case, is cheaper than replacing it. Appearance is secondary. It’s been a long time since I saw the bumper sticker, “Don’t laugh. It’s paid for.”

    I suspect the dealers also are paying through the nose for the cars on their lots. Every day one of them remains unsold is a real loss for them. If enough consumers hold off on car purchases that demand begins to match supply, the smarter dealers will back down on price just to get out from under their own finance expenses.

  • avatar
    Steve_S

    Very few people are in the position to pay cash for a new vehicle. I think the average cost is now around $40k. Most of my cars have been financed at 0% or 0.9%, the highest I’ve paid is 2.9% now on my Supra.

    I could pay it off now but what’s the point? That money is better but into the market which averages 8% return. Not including inflation so the $1 of today is worth more than the $1 in 5 years.

    Having said all of that I’m still paying extra on my loan to have it paid off in 3 years as it provides peace of mind which is valuable to me.

    I also bought a used motorcycle this past year and paid it off after a couple months as the rate was almost 6%.

    It’s the same with paying off a house a lot earlier. Most financial experts will tell you not to when loan rates are low. Better to take that extra monthly amount and put it into your 401k, you will earn more money than you will spend in interest.

  • avatar
    Arthur Dailey

    Please put this into context.

    1. Interest rates are still near historical lows. So consumers should be able to access low interest rate car loans.

    2. Inflation is increasing. So in ‘real dollars’ a long term loan is actually costing the consumer ‘less’ each year.

    3. Car loans for longer periods are reasonable based on how long people keep their vehicles/vehicles last. When a car became a ‘beater’ after 5 years it was reasonable to have 3 year new car loans. Now that vehicles easily last 10+ years, it is not unreasonable to have a 7 year new car loan.

    4. In Canada many consumers are purchasing vehicles using a Home Equity Line Of Credit (HELOC) loan. Meaning they borrow money based on the equity they have in their home. In my neighbourhood our home prices have increased by over 30% in the past year. So just about everybody has increased their ‘net worth’/equity by a considerable amount.

    5. Based on the above economic factors paying cash for a new vehicle (a depreciating asset) is a mug’s game. Use the cash to invest or to increase the value of your home. That will increase your net worth.

    So no, the sky is not falling.

    • 0 avatar
      JMII

      “Now that vehicles easily last 10+ years, it is not unreasonable to have a 7 year new car loan.”

      Problem is people are still buying new cars every 3 years. They are upside down and rolling that debt into the new deal.

      The problem with money management is you need to make smart decisions. The people getting in trouble with these crazy loans are NOT making good decisions. Rule #1 is if your in a hole stop digging but these people are using the money to buy more shovels.

    • 0 avatar
      ajla

      “it is not unreasonable to have a 7 year new car loan.”

      The problem isn’t that the car will be dead. The problems are:
      0. If you didn’t have a reasonable trade or down payment then there is a greater likelihood of being upside down on your loan early on. So you either have to spend more for gap insurance or open yourself up to that risk.
      1. Maintenance and tires aren’t free.
      2. You need to have high confidence in your long-term financial situation and lifestyle needs.
      3. People don’t want to keep their cars long enough to make it work. Most places I’m seeing cite 6 years as the average new car ownership period and 4 years as the average used car ownership period.
      4. If you don’t have a low or 0% interest rate, you’ll be paying more in interest costs

      • 0 avatar
        Arthur Dailey

        @ajla:
        4) Interest paid can often be offset by a) inflation and b) investing the difference between what you would pay on a long term versus a short term loan to increase your net worth.
        1) Maintenance/tires are usually more costly on an older or used vehicle. Particularly one where you do not know its driving and/or service history.

        2) A reliable vehicle often provides people with a greater range/area to go job hunting in and more job security. Therefore it may result in greater overall income.
        3) Unless you want government intervention there is no way to stop people from ‘flipping’ their vehicles too often. Perhaps greater financial education in high school? As the saying goes; “there is no defence against stupidity”.

        • 0 avatar
          Scoutdude

          “there is no defence against stupidity”.

          I have a t-shirt my daughter bought me that says.

          I can fix anything but Stupid.

        • 0 avatar
          ajla

          4) maybe you can make the numbers work in your favor, but you’d really need the factors to break for you.
          1) I’m not sure how the tires on an old car more costly than for a new one. However, my point is that having car payments *plus* larger maintenance expenses happening in years 5-7 is something people taking out long loans need to consider.
          2) If I buy an Ecoboost Mustang and then 4 years later I move to Alaska or have twins or whatever I’d probably prefer to not have a 7 year loan.
          3) I don’t want the government to restrict it but it is something for people to keep in mind.

          I’m not the debt police or anything but outside of <1% offers I wouldn't advise someone to take a 72 month loan.

          • 0 avatar
            Arthur Dailey

            An ‘old’ car has ‘old’ tires so they require replacement sooner. But I am pretty sure you figured that out.

            Current inflation rate is 4.4% in Ontario. That means each year your dollar has that much less buying power. And that means that your debt in ‘real dollars’ decreases with inflation.

            If the interest on a 7 year car loan is less or comparable to a 3 or 4 or 5 year loan, and many manufacturers offer this, then take the longer loan. Then take the difference in what you pay monthly and invest it. And loan rates on used cars are usually much higher than on new cars.

            Unfortunately too many spend the difference on consumables rather than investments.

            And as others have said, do not overspend, get what you ‘need’ rather than what you ‘want’. Few people end up ‘underwater’ buying a Corolla or similar. Leasing a M-B or BMW, etc every few years is another story, unless you can ‘expense’ it.

            For me that will hopefully be a hybrid FWD Maverick, failing that a Toyota Corolla Cross, a Kia Soul, or possibly a Mazda CX-30. Should be able to get 10+ years out of any of those and still find a buyer after that.

    • 0 avatar
      orange260z

      @Arthur Dailey –

      Without going through the entire thread and confirming who said what

      (a) I agree that people too frequently buy cars well beyond their means
      (b) I do feel that relatively “basic” new cars have gone beyond a lot of people’s means
      (c) Although the cars today may last longer than those from 20 0r 30 years ago, many are increasingly focused on the lease market, with minimal maintenance requirements for the first 4 years, but then a lot of often very expensive maintenance in years 5 or 6. This may be fine if you have finished paying for the car, but can be a huge issue when you have a 7 year car loan.
      (d) many people are financing their cars over 7 years not with the alternative of financing over 4 or 5, but because they can’t afford the payments over the shorter term – hence they have no “difference” to invest

      I am also quite concerned about the future of “affordable cars” – it’s one thing to have a $3K repair to the infotainment system on your 6 year old BMW that’s still worth $20K, a whole different thing when you have a $3K repair to the infotainment system on a 6 year old economy car worth $8K that requires it to control key car features such as climate controls. The car may end up in the junk heap for parts.

      • 0 avatar
        Margarets Dad

        “I do feel that relatively “basic” new cars have gone beyond a lot of people’s means.”

        With all due respect, I disagree. My 1996 Golf, bought new 25 years ago, was $14k, with a manual transmission and crank windows. That’s the equivalent of $25k today. Heck, you can buy any number of basic new cars for practically that same $14k today, including a Mirage or Chevy Spark, or maybe spend a little more on a Rio or Soul. And the difference as far as features and overall quality go is night and day.

    • 0 avatar
      jkross22

      Arthur, do you have an idea of how expensive a water pump replacement, oil pan gasket, etc. are to repair?

      Is the typical person able to afford a $1600 surprise repair?

      I’m guessing no.

      • 0 avatar
        Arthur Dailey

        @jkross: you have just made another argument for buying new and financing. That way with minimal maintenance on your part you should not have to worry about paying for major repairs for many, many years/as long as you own the car. And for a considerable period (depending upon the manufacturer and your mileage) it will be under warranty.

        Buying used, you are dependent on the driving/maintenance habits of the previous owner(s) and you have a car that is older/has more miles/may be out of warranty.

  • avatar
    Dartdude

    Only thing I don’t like about Dealers financing is they quote you at interest rate and then find a better rate and keep the difference. Standard borrowing procedures should include 30% down with no help from dealer or manufacturer.

  • avatar
    pesteele

    Dealers taking advantage of their customers? I’m shocked, shocked!

  • avatar
    olddavid

    My poor old brain is having a hard time rationalizing the rush of groups of put-upon humans. Victimology has become a growth industry. The true cause of Olddavid’s problems has always been the guy in the mirror. I spent decades in the financial arm of the industry and I can truthfully say that even when in the trenches I never took advantage of a lack of awareness. I even went as far as calling the salesman back in and asking them to go find a less expensive auto. Never once did it end favorably. I especially remember a young man who inherited over $100k and proceeded to spend it on four Trans-Am’s – three of which he wrecked. He actually asked me why I was reluctant to ask him for the money. It seems as though an education is needed, yet some cannot be helped from hurting themselves. However, it would seem clear when staring at an $800 payment while getting $600 net weekly that perhaps your eyes are larger than your wallet.

  • avatar
    Doc423

    That’s why today, even more than yesterday, the correct way to refer to them is New and Used Stealerships.

  • avatar
    DenverMike

    Dealers are all criminals and the US school system should be sued. Except if the US populous wasn’t full of debt slaves, the whole system would collapse and we’d be a province of China.

  • avatar
    Jeff S

    If you are a responsible person you will not buy more than you can afford. Credit is a good thing when used responsibly. Many people have never been taught how to manage their money. Learning how to prepare a budget, save, and invest are not taught by many parents nor are they taught in schools. I have nephews and nieces who were not taught this but even some who were taught chose not to be financially responsible. Some have to learn the hard way how to be financially responsible and some never learn.

  • avatar
    Pianoboy57

    Another way dealers are getting at people is to add extra cost items to base models by either ordering them that way or adding it at the dealer. I spotted a Ford Maverick XL that had a moonroof. Why would anyone order an expensive unnecessary option on a base model? It added $895 to the price of a $26,000 truck. My old ’04 F150 is a low spec XLT but it had an expensive tonneau cover on from the dealer and other cheap add on trim stuff. I’d bought it used.

  • avatar
    wjtinfwb

    Tying incentives which are heavily promoted and advertised to specific financing sources is a huge source of frustration and deception as well that the Mfg. should eliminate. When we bought our MDX earlier this year, Acura had $5000 Mfg. to Dealer incentive that required you to use Acura Financial Services to obtain the incentive, which amounted to over 10% of the MSRP of the car nad was very attractive. Despite my 745 FICO, the best rate Acura would offer was 6%. I took their offer, made one payment and refinanced through USAA at 1.85% with no additional costs. But it was a hassle and something some buyers may forget or elect not to do. Also, Mfg. should stop tying additional incentives to having to trade in a car, and in some cases a specific Make, in order to qualify for an incentive. Before the Acura we bought a Grand Cherokee in 2012, FCA’s incentives which were very lucrative were based on financing with Chrysler Credit and trading in a vehicle. The dealer offered below wholesale value for our ’04 Navigator, lowballing the trade by about 3k. I declined and sold the car myself for alost 5k more than the dealer was willing to put into the car. Stopping these practices won’t be a cure all but a good step toward a more level playing field. Then the feds need to look into the scam of FICO scores and how they are both calculated and used against the consumer. A total fraud perpetrated by the credit and lending industry.

  • avatar
    DenverMike

    I’ve bought several new trucks in cash, but it forces you to take a good hard look at luxury trim vs base. I’m not in to investment portfolios, I’m focused on my own business and most are commercial use trucks.

    Only one was an XLT which was unavoidable, but now I’m very good at converting crank windows to powered, and XL to King Ranch trim/gadgetry.
    It’s an approx $5K jump between trims, to the Limited. Ridiculous.

    • 0 avatar
      Lou_BC

      @Denver – it is crazy what they charge for luxury packages. Years ago I was in MapleRidge visiting relatives. I went down with my 2010 F150 XLT with STX package. My BIL had a 2009 F150 Platinum. I was chatting with my cousin-in-law’s husband who was not a pickup guy. He asked me what my truck cost and what the Platinum cost. He almost sh!t himself when I told him there was close to a 20k difference in price. He question was, “what do you get for an extra 20k?” He was blown away that the only real difference was leather interior, climate controls, nav, wheels and running boards.

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