Delinquent Car Loans Reach All-Time Highs

yes, but that's much lesser market compared to housing. I doubt we will have great recession again very soon, but it'll eventually materialize later under trump when he starts a trade war.

full disclosure: long bonds, short stocks (short term trade).

 

you forget tuition and healthcare where inflation regularly exceeds 10%.

 

exactly. but i haven't forgotten them, just the government of the last 40 years.

 

Suggest doing your research. We used to have steady inflation till about the 70's. then it went way off the charts. Someone got greedy. They wanted to keep the rich rich and the poor poor. That's where it's headed. They want to get rid of the middle class. The ratio of living to your wage was good till the 70s. Let's not forget gov run healthcare where they dictate if you live or die and eventually probably mandate vaccinations amount other things. Another plan to take away your freedoms in the constitution. No gov period in the world should control your health care. We have that issue here in the USA. Haven for bid we choose how we treat our self. Big pharma has such a pull and somehow got the law past stating you can't practice medicine with out a license crap. And homeopathy gets a bad name. Money is in treatment not cure. This is why it's run as an illegal monopoly. They bill you for the rest of your life. It's billions/trillions of dollars. Don't run or work for charities promising a cure for this or that. Not going to happen unless there is a massive intervention by the people. But they need to wake up and stop drinking the kool aid.


the bat cave

 

Threads like this always have to take a turn down a dark alley........eventually.
Clue: Medical licenses started being required back when about the only big pharma product was aspirin.

 

i think they woke up during the last election. or did they fall asleep?

 

Got a question for you folks who finance at let's say 1-2%. What does someone pay if they decide to pay off their car off in 3 years instead of the 5 they have with the bank if there is no penalty for paying early. Do you folks not pay the 2 years x tra in interest ?


the bat cave

 

The car loans I've had were simple interest. It works like a credit card, pay off the balance, and no extra interest is charged.

 

That's right. Someone with a 3 year 2% apr loan will have the paid the same as on 5 year loan on the same interest rate and loan amount if they choose to pay it off in equal monthly payments over 3 years. There are lots of car payment calculators out there so you can get the answer to your question.

Or in other words the sooner you pay it off the less money you will have paid in interest. This is why credit card balances are so dangerous. Because monthly payments are set artificially low for your "convenience." The payoff period can stretch into the decades. That means paying 4, 5 or even more times more for the item you bought. How can people complain about 25% income tax when they pay 500% interest to the banks?

 

No.
ALMOST any new car loan that you sign will stipulate very clearly that it is a simple interest loan with no prepayment penalty. They also have to clearly display things like interest rates, and loan totals including interest totals in geezer-friendly font, often outlined in bold boxes.

This does not occur because of failures in HR departments that cause banks to accidentally hire somebody with disabilities like ethics or a conscience, but rather because of dot.gov regulation.

Sometimes?
Regulation is a groovy thing.

So....that's the way it's "supposed" to work.
The customer decides whether to take the dealer's teaser rate or get pre-approved in town and negotiate.
Where you get into murkier waters is when your credit score is in double digits, or banks and car dealers cannot arrange financing for a purchase or a (f)lease.
For most people, this should be an impediment to getting a car loan since even Taco Bell workers can get approved for a new car loan with all of the simple interest and prepayment protections intact.
They just pay a significantly higher interest rate, and may in some cases have to kick over some more money or get into things like mandated GAP.

Anything below this level is where you get into the 'sub-prime' areas of new car financing, like "buy here-pay here" and the like.

I'm thinking that the OP article is more about saturation in the new car market.
Financing for new cars is super-easy and they've pushed loans out to absolutely ANYONE who can afford to trade out their 4 year car for the next newer model......including some medium to high risk buyers.
This does not represent a huge bubble of risk since banks are pretty good about doing a repo and short sale on an upside down car and getting a judgement on the former owner.
Cars, unlike houses, are portable and they're much more liquid.
Bank exposure on a bad car loan is usually 4-5 figures, and there's no maintenance and loooooooooong arbitration period for a delinquent car loan.

This is a problem for car MAKERS more so than tax payers.

 

Of course. No penalty is just that.
But it depends on how your specific contract is written.
Don't take any salesperson's word for it.

 

Yes 0.9% or even 2% loans are "free money". Your money can work much harder for you. Remember poor people work hard for their money, rich people make their money work for them.

Even with the crash in 2008 or dot-com bubble in the 90's or all the other crashes the market has had, it has trickled up slowly over time. I'm talking about the normal indexes, and funds/bonds. If you invest in a single business you can make a bunch of money... or lose a bunch of money. It is a total gamble. Spreading your interests around, you probably won't make a ton but you will most likely make 4% in a crappy area. If you sit on cash, your cash is doing nothing. Paying cash for something you can finance at an extremely low rate that you would have bought otherwise is silly and only makes you "feel good" that you have no debt. It something that most people don't understand, debt is actually a very useful tool if used properly.

Paying off a 0.9% loan in 4 months instead of 60 is a poor choice of using your money. If you put that same money into a conservative investment and made even a 1% return, you would have more money at the end of your loan period. On a $20K it would be almost $100. Not much, but something for doing absolutely nothing but carrying debt. If the world around you collapses financially you still have the ability to pay, so you gain absolutely nothing by paying it off early except to say you have paid it off early.

As to the point of sub-prime auto loans, John Oliver did an excellent segment on it a while back. I am sure it is on Youtube or something. Basically doing the report on sub-prime car loans way before your article. He also had a great single example of a car that was sold and repossessed more times than you would even think possible and the outrageous prices people were paying to re-buy this terrible junk heap just to have it repossessed. If this subject matter interests you, I suggest you check it out. It is a lightly humorous way of explaining the grim reality.

As an example, with my Leaf I financed nearly the entire amount. $34K. I could have paid cash.

If I had paid cash, I would have taken $34K out of some of my investments accounts handed it over to the dealership and walked away with a car and zero new debt. Today I would still have a severely depreciated vehicle and still not have $34K in cash. That's pretty simple.

Instead I gave them about $2K and walked away with $32K of debt at 0.5% for 5 years. This was end of 2013 for a MY2013. At the end of 2018 when my loan is complete it will have cost me $408.33 in interest if I pay the normal payments every month for 5 years. It has been 3 and a half years. My Prosper account where that money would have come from has made 9%, 12%, 14% for 2014, 2015, and 2016. So in 2014 my $32K of investments in that account became $34,880 at the end of 2014. That $34,880 became $39,065.60 at the end of 2015. That $39,065.60 became $44,534.78 at the end of 2016. So as of the beginning of 2017, my $32K loan cost me $408.33 (you pay interest first, so I count it as happening on day-zero) but also made me $12,534.78, $10,654.56 after capital gains tax of 15%. Leaving $10,246.23 in "cash" if I cashed it out and took my money of money working for me.

By paying cash, it would have cost me over $10K to get that fuzzy feeling of "having no debt" that some people want.

Investing is long term so even if you lose 50% like what happened to the S&P a few years ago, over time it comes back. As long as you make $408.33 in 5 years, you come out ahead.

There are also tangible side benefits to financing. The dealership gets incentives when you finance through them, and in turn they pass on stupid things to you as freebies that don't cost them much. I get 2 free car details a year with a hand wax including unlimited use of their power car wash for the life of the vehicle. Only available to those that financed. A car detail at my usual place is $150 and a car wash here is $7 for the basic wash which is what theirs is. I usually go once a month for the wash just to get the goose poop off the car. In 3 years, that would be $150 * 6 = $900 in details and $7 * 36 = $252 in car washes. Additionally I got free engine oil changes for a year and a $100 gas card. I found this incredibly funny since the Leaf is pure electric with no engine and therefore no oil to change but also no gas tank. I literally laughed out loud when the salesman gave them to me with that excited look on his face waiting for me to be grateful. They don't sell many Leaf's here and maybe he was in denial that it had no gas engine, I don't know. But if this was a Prius, that would have been another may $240 in free oil changes if you go twice a year. I did take the gas card because I have other dinosaur burning vehicles, so that's another $100 in my pocket.

In addition to the $10K my money made for me instead of paying cash, just the fact I took out a loan netted me close to $1.5K worth of free stuff I would have paid for anyways.

Tell me again why you would ever pay cash for a vehicle???

 

Go without collision ....only comprehensive insurance and you will see affordable price....
That is how I insured my car's
I guess I come from different society and being raised to pay with cash my things
Good way for no overhead with your retirement....

Posted via the PriusChat mobile app.

 

An "affordable price" for insurance premiums is OK only if you can afford to not have the asset insured. Basically you are paying the insurance bribe to keep the vehicle on the road but if you ever need the insurance, you basically don't have it. Copy/Paste for other insurance as well like home owners insurance or in this country health insurance. I have super el-cheapo insurance on some vehicles but the daily drivers have much more premium insurance and premium premiums. You know how the talk is that the average car is mid-$30K sale price now? Well there are also lots of $50K SUVs or $80K vehicles on the road all around you. Some basic minimum insurance can be eaten up fast. If you hit a Panamera Hybrid high end touring package which is all around where I live, that's a $200K vehicle. Maybe $150K depreciated for the claim. If you hit it with your econobox with super-saver insurance, you can blow through your $100K limit really really fast. If you take out a telephone pole or something? Good luck. It is really easy today to end up with not enough coverage. The sad reality is that most people making these "cost cutting measures" are the hardest hit when the hammer finally comes down and it ends up costing them more money in the end.

So please don't buy insurance just because it is the absolute cheapest. Weigh the options with your personal finances and see if you can afford by yourself.

There is no reason why you can't have debts and assets. If you have $250k sitting in the bank and $10k a year in debt expenses, you are solvent for 25 years if you lose all your investments. But if you don't lose all your investment, which is more probable, then your money sitting there can pay your expenses and if you live to be 300 years old, you will still have some money.

"Being raised to pay cash" is fine, but use some critical thinking skills to determine if this is still correct for you. Remember when you were being raised, tax rates were much higher. Interest on loans was 10x or more what it is today. All this advice only applies if the loan rate can be had for less than the average investment return. The return hasn't changed much but the loan rate has gone from 20% or 30% to 0.5%. Things have changed.

You may have heard this ham allegory but it is my favourite:

A young girl was watching her mother bake a ham for a family gathering and noticed her mom cutting off the ends before placing it in the oven.

“Mom, why do you cut the ends off before baking the ham?” she asked.

“Hmmm…I think it helps soak up the juices while it’s baking. I’m actually not sure, though. That’s just the way your grandma always did it, so I’ve just always cut them off. Why don’t you call grandma and ask her?”

So, the little girl phoned her grandma and asked “Grandma, mom is making a ham and cut off the ends before placing it in the oven. She said that it’s probably to help soak up the juices but wasn’t sure. She said you’d know because she learned how to cook from you.”

“That’s true. I do cut off the ends of the ham before baking. But I’m actually not sure why either. I learned how to cook from my mom. You should ask her.”

So, the inquisitive little girl called her great grandmother and asked “Great grandma, mom and grandma said they learned how to cook a ham from watching you. Do you cut off the ends of the ham to help it soak up the juices?”

The great grandmother chuckled. “Oh, no sweetie. I just never had a pan big enough to hold a whole ham, so I always had to cut off the ends to make it fit.”

 

if my loan is .9%, and my cd's are paying .75%, i'm paying off the loan.

 

And if your cd's are 0.75% and the loan is 0.5% then you keep the loan...

Or if you have Greek or Argentinian CD's probably best to get rid of the cds... It's all about risk management.