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-   -   Seven year auto loans (https://www.early-retirement.org/forums/f28/seven-year-auto-loans-100139.html)

Chuckanut 10-02-2019 04:41 PM

The nice thing about a three auto loan is that after you pay it off, there are usually at least two or three more years of no payments and no repairs. With a seven year loan one could have repair costs and the loan payments. :eek:

Markola 10-02-2019 05:40 PM

Quote:

Originally Posted by USGrant1962 (Post 2305204)
I would never recommend a 7-year car loan. But one relevant factor is that modern cars last much longer than they used too. I saw an article the other day about how the interiors were now not lasting as long as the exteriors and mechanicals.



Yeah, so people should buy used cars and pay cash. Heresy in this consumer culture, I know.

pb4uski 10-02-2019 05:47 PM

Quote:

Originally Posted by athena53 (Post 2305239)
Sounds like your DS did well, but buying based on monthly payment is what gets people into these longer-term loans. I HATE the car-buying BS; DH and I bought cars off-rental the last 3 times and were very happy. Here's the price, take it or leave it, get your own financing, show up with the check and get the car. If a dealer were to start the conversation with, "So... what monthly payment did you have in mind?" I'd leave. They can get you to the monthly payment you want by giving you a not-so-great deal on a cheaper car and/or extending the loan term.

I probably should have mentioned that his maximum payment was only $215/month.

always_learning 10-02-2019 06:58 PM

Quote:

Originally Posted by Jerry1 (Post 2305049)
Interesting article on auto loans. Americaís middle class canít afford their cars.

Apparently, auto loans have grown to seven years in length. Interest comment in the article that auto dealers now can make more on their loans than their cars. Other interesting note was that they take these loans and bundle them into a bond like product. Didnít we learn not to do that from the 2008 credit crisis?



https://apple.news/AoTmBEHNUR86gBUFPL0gNqw

Hereís the WSJ link but you have to sign in.

https://www.wsj.com/articles/the-sev...rs-11569941215


I can't read the article, but I'm not surprised at the story. It seems that things are shaping up for a repeat of history, if the podcasts and call-in shows I listen to are any indication of what's happening "out there".

Not only are car loans being made for *8* years now, but it seems that it's not all that uncommon for households to have two of these loans, sort of a 'his and hers' if you will.

These callers/posters on other forums are also talking about financing for houses and finding that lenders are relaxing minimum down amounts, credit scores, and even proof of income. That doesn't sound too good.

GalaxyBoy 10-02-2019 07:07 PM

As a kid, I remember Dear Old Dad seeing a 48-month loan in the paper and erupting in disbelief. I got my first car, used, when I graduated from college with ten bucks in my pocket and DOD was good enough to co-sign the loan so I could get the unbelievably low interest rate of 17%. He insisted I not go longer than 36 months, and although I grumbled through those three years of payments I was eternally grateful to him for his advice in the long run.

Fast forward 15 years and DW and I paid cash for our first car together and discovered the joy of never having a car payment again. Save your money, then buy the car. Not easy starting out, of course, but once you pay off the first loan you simply LBYM, as we all know.

When I bought my new truck two years ago just before ER a coworker asked if I got a good interest rate. I've learned generally not to mention paying cash for such a large purchase, but my puzzled look gave me away instantly. He glared at me and walked off, not needing a verbal response. LOL

But seven years? [shakes head]

brewer12345 10-02-2019 07:07 PM

Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

Is this a good idea? Obviously not. But Cars last a lot longer than 7 years and most people buy based on the payment.

pb4uski 10-02-2019 07:14 PM

Quote:

Originally Posted by brewer12345 (Post 2305335)
Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

Is this a good idea? Obviously not. But Cars last a lot longer than 7 years and most people buy based on the payment.

I get it. But the article said:

Quote:

He paid $27,000 for the car, less than the sticker price, but took out a $36,000 loan with an interest rate of 1.9% to cover the purchase price and unpaid debt on two vehicles he bought as a teenager. It was particularly burdensome when combined with his other debt, including credit cards, he said.
Are they really writing loans in excess of the value of the collateral?

joeea 10-02-2019 07:18 PM

Quote:

Originally Posted by brewer12345 (Post 2305335)
Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

LOL! Rich man's ghetto?

:laugh:

Gumby 10-02-2019 07:20 PM

Some oldtimers may remember this thread from 2006. Same hymn, second verse.

https://www.early-retirement.org/foru...ngs-22533.html

Walt34 10-02-2019 07:21 PM

Quote:

Originally Posted by pb4uski (Post 2305341)
Are they really writing loans in excess of the value of the collateral?

Yes.

If the buyer has good credit they've been doing that for years. I first learned of it when a SIL (the one I sometimes refer to here as "Spendarina") bought a new car because the "old one" all of three years old, need a $250 brake job. She was happy with the deal because her payments were only $15 a month more.:facepalm:

Senator 10-02-2019 09:48 PM

Quote:

Originally Posted by LRDave (Post 2305209)
I have a 5-year loan on my tractor - I wish it was 7-years or even more!

(Interest rate is 0.0%).

I am getting ready to by a Kubota MX5200. Hopefully they have a 5-year loan at 0.00%. From what I see, the initial price of the tractors are $500+ higher with the 0.00%.

CoolRich59 10-02-2019 10:19 PM

Quote:

Originally Posted by pb4uski (Post 2305054)
This part was really scary....

My thoughts exactly.

This was pretty scary too: "... a growing share of car buyers wonít pay off the debt before they trade in their cars for new ones, either because the car is in need of repairs or because they want a newer model."

What a recipe for disaster. :eek:

Badger 10-03-2019 03:35 AM

I hate borrowing money especially since any item would depreciate while still having to make payments. So I started paying for everything with cash/check except for a credit card that is paid off every month. I really don't like the monthly inconvenience of having to remember to write out a check on a loan. The last time I did that was around 1992. I like to simplify as much as possible as I get older and forgetful.



Cheers!

Andre1969 10-03-2019 04:12 AM

Quote:

Originally Posted by ExFlyBoy5 (Post 2305142)
This is nothing new. I guy I went to HS with has been doing this for at least 20 years. I think his car payment is more than his mortgage.

I almost let myself get seduced into this back in 2002. I had a 2000 Intrepid that I had bought new, in November 1999. 0.9% for 60 months. In early 2002, I looked at a Nissan Altima. It was all-new that year, and I was really smitten. At the time, I still owed about $11,300 on the Intrepid, and they offered me $6500 in trade. Those cars depreciated fast, as I discovered, and I already had about 56,000 miles on it at that point.

They offered to let me roll the negative equity into the new car, but I would have been financing something like $28,000, on a fairly basic Altima. My payment would have gone from $347/mo to about $525, and pushing it back out to 5 years. Thankfully, common sense got ahold of me.

I came somewhat close to getting back into the payment trap again. In September 2003, I went car shopping with my Dad. We saw a used '03 Regal that he really liked, and ended up buying. But, while we were there, I saw this '02 Intrepid R/T that I really liked. I think they wanted something like $16K for it. By this time, my 2000 had about 87,000 miles on it. I owed around $4800 on it, and they gave it a trade in value of $3500. They said they'd give me what I owed for it, though. I was tempted, but that '02 gave me a bit of a bad vibe, the more I thought about it. One nitpick was the dealership wouldn't give me an answer as to how much factory warranty it had left. Back then, Chrysler switched up a bit, so not all 2002 models had the same warranty. Some had a 3/36K bumper to bumper, but some had that, plus a longer powertrain warranty. One of its headlights was also misaligned, and made me think it had been in a minor accident. And the sales manager said that a mechanic had owned the car, so it had been well maintained. BUT, they couldn't produce any service records. So, it just seemed...iffy.

Anyway, I passed on that car, ended up paying off the Intrepid in late '04, and ended up driving it until it was about 10 years old and 150,000 miles, when it got totaled.

LRDave 10-03-2019 04:50 AM

Quote:

Originally Posted by Senator (Post 2305396)
I am getting ready to by a Kubota MX5200. Hopefully they have a 5-year loan at 0.00%. From what I see, the initial price of the tractors are $500+ higher with the 0.00%.

On mine, the deal from the dealer was independent of the financing. In my case, I got the tractor from family in the business, so slightly discounted. Mine is a sub-compact - the margins on the small tractors are quite low. They make their profit in implements and parts/service. (Sounds familiar:))

Perryinva 10-03-2019 05:08 AM

Whenever one purchases a depreciating asset, it cannot be looked at as any kind of investment but as an asset net value judgment. The money is going away as you use up the asset. The way I have always looked at it is “what is the cost per month and is there value in that cost?” The value part is where we all have different judgments. In BLow the Dough threads, excess money is spent on expensive food, drink, and travel. Judgment calls are being made. For financially saavy people leveraging debt makes you money or simply reduces net costs. Whether you pay for a service, or expensive food, it is a choice you make for the use of your money, ie: the reason You worked.

Being able to afford that cost is a different discussion. You can pay cash for a well negotiated $70k car. You want the car, and you have made the judgement that it is worth its cost to you, which is peanuts to your bottom line. Then the dealer offers you a 7 year loan for $50k at 0.9%. You would be a fool not to take it. Even if you parked the money at 2% you are getting a discount over paying cash. Preaching to the choir, I’m sure.

The terrible part is of course as everyone has said, is that the same loans are being made to people that can’t really afford the item, just like the housing bust if 2008. I applaud 7 year loans for those that can make money on them, though like others here, I cannot see myself doing that. Just too much ingrained aversion, plus I have never seen the favorable rates for that long a period on my purchases.

But once I won the game, and decided to spend my winnings at my awarded rate (isn’t that what we all are doing?), then it is simply a game to get the most of what you want for the least. I do my homework and negotiated my last 2 new car purchases (out of only 4 lifetime new cars) till the dealers cried impossible and walked away. When they came back to ask if my offer was still good, I was satisfied that I was getting what I wanted at the best price. I make no bones about the loss of that money for the depreciating use of the vehicle. It is easy to predict (usually) what the residual value will be over time, and whether that net cost is worth it to you. I have two car loans, (after maybe 20+ years of not having one) one with 8 months left, and the other 44 months left. I saved about $400/yr having those loans vs paying cash. In fact, BMW actually offered a further incentive if you financed over a certain amount as part of the negotiation, if your credit score qualified you. All payments are automatically made so that is effortless and I don’t even notice them.

I aim for a net cost (not including operating expenses except insurance ) of less than $2k/yr over the life of a used vehicle, and a bit more for a new one, as the warranty period carries a definite value that used does not. Of course, the longer you own the car, the lower the cost per year unless the repairs go on the rise. And no new car has any reasonable cost per year for the first 5 years at least. My 99 Dakota beater truck I have owned for 13 years is down to $300/yr, and my Porsche (11 years) is down to $1300/yr. (Both bought used of course)

pb4uski 10-03-2019 06:06 AM

Quote:

Originally Posted by Badger (Post 2305430)
I hate borrowing money especially since any item would depreciate while still having to make payments. So I started paying for everything with cash/check except for a credit card that is paid off every month. I really don't like the monthly inconvenience of having to remember to write out a check on a loan. ....

No inconvenience at all... I just set up a recurring check with my bank for the payments and for the number of payments of the loan and from there it happens automatically... also automatically imports into Quicken. Easy peasy.

Chuckanut 10-03-2019 09:13 AM

FWIW, twice I did sign up for a 5 year loan when buying a car. The first time the interest rate was 0% (which beat the cash discount taking inflation and the time value of money into account) and the second time it was 0.9% (same factors taken into account).

One thing I had to watch for was buying gap insurance since the value of the car would sink faster than the amount I owed for the first few years. The dealership wanted to sell me a gap policy for about $140 a year. :eek: The company that insured my home and car charged me about $12 a year. :) After three years I figured I no longer needed the gap insurance and cancelled it.

Like PB4 I setup my bank's bill payer system to automatically make my loan payment each month.

jazz4cash 10-03-2019 09:25 AM

Quote:

Originally Posted by brewer12345 (Post 2305335)
Folks, these loans have been popular for several years. Get out of the rich man's ghetto once in a while.

Is this a good idea? Obviously not. But Cars last a lot longer than 7 years and most people buy based on the payment.



+1

Andre1969 10-03-2019 10:23 AM

This thread got me thinking...my Mom didn't have a car payment until 1986. That year, she bought a new '86 Monte Carlo at the end of the model year. I don't know how much she put down on it, but I seem to recall it was $282 per month for four years. MSRP on the car was just under $15K, but I don't know what she paid out the door, with discounts and such. I think cars like that were actually becoming a bit of a hot item. There was starting to be a bit of an FWD backlash at that point, but good, old-fashioned RWD V-8 cars were getting harder to find as the auto makers discontinued some, and reduced output on others to avoid getting CAFE fines. So, even though it was the end of the year, it might not have been discounted *that* much.


Still, it's interesting to see how much car payments HAVEN'T gone up over the years, as long as you stick to something somewhat modest. For instance, my 2000 Intrepid was $347.66/mo. I financed $20,389 for 60 months at 0.9%. I think they would have given me another $1500 off if I went with "regular" financing, but in those days, that was something like 6.5-7.5%.


In 2012, I bought a new Ram at the end of the model year. I financed about $19,400. The payment was around $358/mo for 60 months, and I think the interest rate was 3.99%

Neither of these were fancy vehicles. The Intrepid was a base model, but still pretty well-equipped. Power windows, locks, cruise control, nice stereo, etc. All pretty much standard equipment these days, but once upon a time it would have been a luxury car. The Monte Carlo just had crank windows and manual locks, but it did have a V-8, and a nice sound system. The Ram is a basic RWD truck, regular cab, 8-foot bed, but it has power windows/locks, a nice sound system, and the Hemi V8.

Adjusting for inflation, my Mom's $282/mo payment back in 1986 would be like $660 today! :yuk: My Intrepid would be like $535 in today's dollars. And even the Ram would be around $400. Now, Mom's car skews the results a bit, because it was a 4 year term versus a 5-year. But, I think it still shows how, as long as you don't go hog wild on a new car, you should still be able to get a reasonable payment, and for a term that won't outlive you.


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