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I don't have a bond allocation. Im too young, so my 401k is all in index funds.
If you could trade on margin at 1.59% I would. Margin money is typically a lot more expensive than that and like you said there is the margin call risk. Capital one isn't calling and asking me for $15k tomorrow for my truck.
I don't have a bond allocation. Im too young, so my 401k is all in index funds.
Ok, I agree that very aggressive investors may benefit from car loans. But this is a small subset of the car-buying population - those who 1) don't/shouldn't have bonds, 2) Have a good, reliable income, 3) cannot afford to both max out retirement AND pay cash for the car, 4) Won't be affected by DTI if trying to get a mortgage later on, 5) won't be tempted to bail on downturns, 6) are buying a new enough car that such low rate loans are available, 7) won't buy more car as a result of the loan than they'd buy with cash.
In all sorts of credit from personal, student, car, etc... all many see or want is low monthly payments.
Long time lurker here, but felt compelled to register after reading this comment. When I graduated from college in the mid 90s, I had about $20K in student loans. As I progressed in my career and started to earn more money, I decided to increase my monthly loan payment to pay the balance down faster, so I called Citibank and told them what I wanted to do. A week later I got a letter in the mail confirming the payment change. The first line of their letter said "In order to keep your monthly payments as low as possible..." and then proceeded with the details of the payment INCREASE. I realized they didn't even HAVE a form letter available for people who wanted to increase their payments, only decrease them! That really opened my eyes about how many Americans don't have a solid grasp of finances and the time value of money, and can only understand the number shown on the "pay this amount" line of their monthly bills (or just as likely, not willing or able to increase loan repayments).
Not mentioned in the article, but the average loan for a new vehicle is now 68 months as well. 66 months for used vehicles.
Sounds like a lot of people make a lot of bad decisions to me. I dont see a ton of new Mercedes and BMWs on the road, must be a lot of subprime borrowers making up the market here. Does not seem very healthy.
A year ago we bought a new Lincoln, balance after trade in was $36K @ 0% for 60 months. $600/mo. We would have been stupid to NOT finance it!
My current car is 18 years old and just hit 85k miles. That isn't a typo. I drive the same car forever, and drive very short distances, so a car can last a long time.
My husband's car is 10 years old and only has about 30k miles on it. So same thing.
That being the case, I don't feel too bad about splurging a little for a new car. My next car will be one of the Tesla model 3 when they become available for public purchase without reservations, so in several (hopefully less than 5) more years. It'll be over $35k. I'll probably put at least $10k down, so my loan will likely end up around $30k.
But by that time, my house will be almost paid for, I don't have kids to send to college, I'm in decent shape to retire in my 50s. Why not splurge just a little?
My credit is immaculate, so I expect to get whatever the best available interest rate is at the time. I'll probably do a 3 year loan on the balance. I'll be in a position I COULD pay cash for it, and may do so if I can't get the rate I want.
Long time lurker here, but felt compelled to register after reading this comment. When I graduated from college in the mid 90s, I had about $20K in student loans. As I progressed in my career and started to earn more money, I decided to increase my monthly loan payment to pay the balance down faster, so I called Citibank and told them what I wanted to do. A week later I got a letter in the mail confirming the payment change. The first line of their letter said "In order to keep your monthly payments as low as possible..." and then proceeded with the details of the payment INCREASE. I realized they didn't even HAVE a form letter available for people who wanted to increase their payments, only decrease them! That really opened my eyes about how many Americans don't have a solid grasp of finances and the time value of money, and can only understand the number shown on the "pay this amount" line of their monthly bills (or just as likely, not willing or able to increase loan repayments).
Student loans are very ***** ducks, and can vary by source (federal subsidized or private) in terms of how "extra" or excess payments can be made to decrease the amount owed faster.
Had Citibank as well (they've long since gone out of the student loan business, and sold off their portfolio to Sallie Mae), and wanted to apply the trick of paying down a mortgage to my loans. That is make a second payment before cycle ended in order to get at the principal, soon found out it wasn't really possible.
Most all student loans then were locked into "X" payments for "X" amount of months. IIRC repayment periods were for ten years but you could choose twenty or some other longer period. The latter reduced the monthly payments but obviously increased the total amount paid because you are stretching things out.
Once payments started if you paid more than the amount due the excess went towards next payment due. Only way around this was to indicate at time of excess payment that you wanted the amount applied to principle. That was with Citibank, not sure how anyone else did it, but obviously it is a huge PITA.
Think what happens is the system is designed for set payment periods, and cannot handle (logically) requests to deviate from that script. Was told by a Citibank student loan customer service representative continued excess payments would sooner or later "force the loan to be recalculated"
When you think about it those making student loans get their money from (in part) interest paid. If things are paid off sooner it obviously saves the borrower money (less in accrued interest), but that takes money away from the issuer.
Been there done that. Glad I made all of the mistakes early in life. I got no payments on cars except my prius. Less than 2 years left at modest payment. No more car payments forever. My cng civic and 300zxTT are paid for. Nice feeling having the titles in hand. I am working hard to save for another real estate purchase.
What do you mean? Price controls on cars? Do you know what tends to happen when price controls are imposed? Hint - it rhymes with "Sportage".
Nope.
Credit control.
They need to stop subprime leasing or financing.
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