7 year car loans. Does anyone else think this is a really bad idea? (payments, financing)
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FTA: In the final quarter of 2012, the average term of a new car note stretched out to 65 months, the longest ever
Experian said that 17% of all new car loans in the past quarter were between 73 and 84 months
Based on recent economic history, I am just really opposed to this trend. These people getting loans on an asset that will be worth less than 25% of the original price when the loan is paid off.
I got a 72 mo loan on a brand-new $27K Jeep JKU at 1.7% interest with no down and I am down to 20K on my loan with a value still around $23/24K after almost 2 years and am only paying around $400 bucks a month on what is pretty much my dream car.
Somebody tell me how that's bad?
A car isn't an asset... that's your first error. You will always put more cash into a car than it will ever give you back... the best anyone can do is minimize the loss.
So If you can get good interest rates, cheap payments, better cars and keep you loan under your value a 72+ month loan can be great!
The loan length for me has to do with how much the car costs. No way would I go that long on say a Honda Civic. My longest term for me was in 2002 I went with a 72 month loan on a brand new Chevy Suburban. Was the most expensive purchase I ever made besides a house and the only thing that makes me feel somewhat good about it is my wife still drives it and it has been the most reliable vehicle I have ever owned. I will soon be in the market for a new truck and I would not have any issue with a long loan term like that. The next truck I plan to buy I will probably drive it 15-20 years and with 60K+ sticker prices a crazy long loan is about the only way I will be able to afford the vehicle I want.
There are an awful lot of people who had good jobs and could 'easily afford' the payment on a new car. So they bought one.
Then The Recession hit. They lost their job. No fault of their own; it just disappeared.
I need not tell you what happened to so very many of these people. As a result of listening to those people who preach "ya gotta spend the money on something!, fer Christ's sake", they lost everything. Including that precious car they could so easily afford, but could not sell for what they owed.
Many of them learned and will not be repeating their mistake.
The act of deliberately putting yourself underwater should be reserved for fish, not people.
The loan length for me has to do with how much the car costs. No way would I go that long on say a Honda Civic. My longest term for me was in 2002 I went with a 72 month loan on a brand new Chevy Suburban. Was the most expensive purchase I ever made besides a house and the only thing that makes me feel somewhat good about it is my wife still drives it and it has been the most reliable vehicle I have ever owned. I will soon be in the market for a new truck and I would not have any issue with a long loan term like that. The next truck I plan to buy I will probably drive it 15-20 years and with 60K+ sticker prices a crazy long loan is about the only way I will be able to afford the vehicle I want.
Yeah. I'm still driving the one I bought in 1990. Paid 17,000 for it
I got a 72 mo loan on a brand-new $27K Jeep JKU at 1.7% interest with no down and I am down to 20K on my loan with a value still around $23/24K after almost 2 years and am only paying around $400 bucks a month on what is pretty much my dream car.
Somebody tell me how that's bad?
A car isn't an asset... that's your first error. You will always put more cash into a car than it will ever give you back... the best anyone can do is minimize the loss.
So If you can get good interest rates, cheap payments, better cars and keep you loan under your value a 72+ month loan can be great!
Maybe it isn't for you. A car is absolutely, indisputably an asset for me. It would be extremely difficult to outright impossible to generate at least 80% of my income without it. In my personal life, it's also damned useful.
I don't really have any issue with spending six years to buy a toy if that's what you want, however. I'd probably throw my motorcycles in the non-asset category. They potentially could be for someone, but aren't the way I use them. I'm not quite to the point I'm really to pull the trigger on a $17,000 BMW 1200 GS Adventure, but I can see the appeal.
There are an awful lot of people who had good jobs and could 'easily afford' the payment on a new car. So they bought one.
Then The Recession hit. They lost their job. No fault of their own; it just disappeared.
I need not tell you what happened to so very many of these people. As a result of listening to those people who preach "ya gotta spend the money on something!, fer Christ's sake", they lost everything. Including that precious car they could so easily afford, but could not sell for what they owed.
Many of them learned and will not be repeating their mistake.
The act of deliberately putting yourself underwater should be reserved for fish, not people.
And there's plenty of people that bought new, lost their job, and are doing just fine. There's a difference between buying a new car and burying yourself up to your eyeballs in debt. I could have paid cash when I bought it in 2008. Considering the market has gone up by about 70% then and that's where the cash would have come from, I'm quite glad I did not.
And there's plenty of people that bought new, lost their job, and are doing just fine. There's a difference between buying a new car and burying yourself up to your eyeballs in debt. I could have paid cash when I bought it in 2008. Considering the market has gone up by about 70% then and that's where the cash would have come from, I'm quite glad I did not.
I've updated the chart to include actual S&P 500 performance. Assumes car was purchased January, 2009. 2013 performance is estimated based on the current YTD performance. 2014 is estimated at 9%.
I think it is a bad trend. It puts people in debt for longer periods and they are paying interest to a finance co. or bank. Most of the people who profit from loans are richer than the people taking out the loans. Too many people are taking on too much debt IMO and these longer term loans just encourage it even more.
I have no problem buying a new car. I bought a new car 2 years ago for $27,000. I saved up over time, cashed in my bonds and bought my car for cash.
Why buy a new car and pay interest to someone else to drive it when you can save up, have someone pay you interest instead then cash it in and buy the new car? That also eliminates the possibility of it being repossessed.
I believe these loans are also driving up the price of cars by making them accessible to more people at a higher price, allowing the car companies to charge higher prices. I'd rather more pressure be put on car companies to lower the price and these type of loans do the opposite.
I think that is ridiculous. My philosophy is to buy cars I can afford to pay off in two years, three max.
What's the difference between that and buying cars you can afford and paying it off in seven, eight, or ten years?
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