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post #1 of 12 (permalink) Old 02-23-2008, 04:56 PM Thread Starter
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Buyers stretch car loans

And so many people moan and bitch about being upside down. Go figure.

From the Detroit Insider:

Saturday, February 23, 2008
Buyers stretch car loans
Dealers and lenders say more are opting for 6 years or more for lower payments in sour economy.

Christine Tierney / The Detroit News

People are driving their cars longer than they did in past years -- and taking longer to pay for them, too.

A decade ago, the typical car loan extended over 48 months, or four years. Now the most popular loans stretch out payments for six years or more -- between 72 and 80 months -- according to J.D. Power and Associates' Power Information Network division.

Most automakers and finance firms offer 84-month auto loans, "and I've seen 108 months," said Tom Libby, senior director of industry analysis at Power Information Network. "It's small numbers (of loans) but it's nine years."

That, coincidentally, was the median age of cars on U.S. roads last year, according to consulting firm R.L. Polk & Co.

Dealers and auto executives attribute the extension of auto loan terms to several factors, ranging from the improved quality of cars that has led people to expect them to last longer, to consumers' efforts to stretch their budgets in a tough economy.

"Obviously it's a way to get the payments down," said Mike Stoller, a spokesman for GMAC LLC, the finance firm partly owned by General Motors Corp.

Lenders and dealers say loans stretching 84 months and longer represent a tiny fraction of the total, and they say they offer them only to customers with excellent credit.

Toyota Motor Corp.'s Toyota Financial Services, which began offering 84-month loans last summer, says those loans account for 4 percent of the vehicle sales it finances and carry interest rates that are a half to three-quarters of a percentage point higher than rates on six-year loans.

At the River Oaks Chrysler Jeep dealership in Houston, Vice President Alan Helfman says 96-month loans are available, "but the longest we do is 84 months. It is to good people with good credit."

Customers applying for such loans are typically government employees or retirees, people on a fixed income looking for an affordable monthly payment, he said. Product guarantees such as Chrysler's lifetime drivetrain warranty give consumers the confidence to take out long loans, Helfman said.

But dealers and lenders question the logic of taking out extended loans on a depreciating asset. "It becomes kind of a mortgage payment on wheels," said Stoller at GMAC. "It's not necessarily good business for the consumer. It's not necessarily good business for the dealer."

People who take out seven- and eight-year auto loans are likely to be out of the market for a long time, said Paul Taylor, chief economist for the National Automobile Dealers Association.

He noted another financing trend -- toward shorter lease periods of as little as two years, with attractive terms -- that suggests automakers see tough economic times in the near term but expect demand to have recovered by the time the leased cars are returned.
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post #2 of 12 (permalink) Old 02-23-2008, 05:57 PM
 
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Old news. There was an article, and we had a thread topic on this about a year or two ago. Just as it was then, still is now, a deep and disturbing trend of the economy getting into further trouble by extending debt too far. Think about it, after 6-7 years, how much value can be left in a vehicle? And because the note is that long a term, the entire time a person has a loan that long, they are pretty much guaranteed to be upside down mostly the entire time because they aren't paying down the principal as quickly as a shorter note.

By continually offering longer and longer terms like this, it is perpetuating a downward spiral of debt. Also, terms that long might just as well be likened to the sub-prime mess in the housing market. The sub-prime fiasco was marketted to people who either should not have been able to buy a home otherwise, or should not have afforded the amount of home they got themselves into. Longer term car loans are doing the exact same thing. Can't afford a 4 year note on a new Lexus? No problem, stretch it out over 7 years and now you can!!! Take this, a $30K car with nothing down at 8% and 48 months the payments are $732/mo. Take the same terms but extend it to 84 months and the payment drops to $468/mo, almost a $300 difference. but, in 4 years, when you'd probably want to trade it in, with an 84 month note, you still owe approximately $14,900, or nearly half of what you financed. Also, lets not forget, my example is a little skewed because a longer note will always get a higher interest rate than a shorter one, so you'd owe more than half of the original value than my example shows using the same rate for both. And unless you kept the miles down and the vehicle in immaculate condition, and there is still a market for your trade, you're not getting that much trade in value back on it. Upside down, so typically if people don't have the difference just lying around to pay off the negative equity, it gets rolled into the next car loan. And on and on and on...... This is deeply disturbing.

You can point to this person or that person and tell them how foolish or what kind of mistake they have been making, but when there is a growing trend in the economy as a whole moving this way, its like a slow motion movie of the bus going over the cliff. It doesn't end pretty.

Last edited by froggy81500; 02-23-2008 at 06:03 PM.
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post #3 of 12 (permalink) Old 02-23-2008, 06:07 PM
 
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Originally Posted by moparman View Post

He noted another financing trend -- toward shorter lease periods of as little as two years, with attractive terms -- that suggests automakers see tough economic times in the near term but expect demand to have recovered by the time the leased cars are returned.

This particular item caught my eye after I was proof reading my post. That is more or less like the sub-prime mortgage. They are banking on things getting better in the short term, 2 to 3 years. but what happens if they don't? Just like people are losing their houses, people will find themselves in similar circumstances with their cars.
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post #4 of 12 (permalink) Old 02-23-2008, 11:35 PM
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I'm looking to replace my wife's 98 Contour and I'm seriously thinking about buying my first new car. GM has 60 months 0% interest loans right now. I would be keeping the car for at least 10 years anyway, so why not? What do you guys think?
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post #5 of 12 (permalink) Old 02-24-2008, 03:45 AM
 
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Not to mention the issue created where the car is designed by GM to be replaced every 4 years, yet you intend on keeping it for AT LEAST 8 because of your car loan...
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post #6 of 12 (permalink) Old 02-24-2008, 04:20 AM
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coming from first hand experience. don't get into a long term loan if you mind paying may times more for the car! my first time with this was really stupid! 2 Octobers ago I was in a accident, that totaled my then 93 Honda accord se. that made me get a new car. and seeing as that I was young and my credit sucked I went with one of those car marts that say they can help anyone. well they showed me my intrepid, which was great! and they were selling it for 10,000. well stupid me, I signed on the dotted line with a 60 month 21% loan! little did I know it was instant upside down! it was after the fact that I relized that IF I lasted the whole 60 month I would be paying over 20,000!! for my car! and need less to say. I have had some since of buyers remorse ever sence. it took me over a year till I was able to re-fi for a much lower but still not great 14%. so I have learned a very good and costly lesson here! lol. from now on I am not going to do that again! it is stupid to pay many times the cost of a car just cause you save a couple bucks a month. if you can't aford a reasonable term then you need to lower your standards till you can! anyway thats my soap box moment. lol, atleast one person I know close to me has learned from my experence so maybe others can too.
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post #7 of 12 (permalink) Old 02-24-2008, 06:36 AM
 
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Quote:
Originally Posted by Red Delta View Post
I'm looking to replace my wife's 98 Contour and I'm seriously thinking about buying my first new car. GM has 60 months 0% interest loans right now. I would be keeping the car for at least 10 years anyway, so why not? What do you guys think?
Excellent. In 2006, we got rid of the '98 Sebring my wife had, got her into a new '06 Ion manual for 4 years 0%, while rolling over about $2500 negative equity. Then in May 2007, we traded in my trep, which had about $3000 negative equity, and got her into a new 2007 Ion auto for 5 years and 0% (and I got the 06 manual because I wanted the stick).

Given that we are paying no interest whatsoever, the negative equity gets paid down a lot quicker. I figured on the 4 year note, if we kept the mileage average, we would have positive equity in just 2 years.

In your situation, Red Delta, with a 10 year old car, I'm figuring you own it outright, no oustanding loans on it. Why not jump at the chance of financing a car where you are paying for nothing but car? As long as its a car you can live with for a few years, its the best way to finance anything.

When we were looking to replace her sebring, I spent the better part of a month researching other cars, and the Ion didn't hit my list until I saw the financing deal. When comparing it to similar cars in that class, there was enough comparability where, with everything else being nearly equal, the financing offer sealed the deal.
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post #8 of 12 (permalink) Old 02-24-2008, 07:14 AM
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Quote:
Originally Posted by froggy81500 View Post
That is more or less like the sub-prime mortgage.
I was about to say the same thing. On top of that, they're probably paying way more than the car is worth with all the interest. People need to stop trying to keep up with the Joneses and really think about what they can afford on their own salary.
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post #9 of 12 (permalink) Old 02-24-2008, 07:25 AM
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Quote:
Originally Posted by Red Delta View Post
I'm looking to replace my wife's 98 Contour and I'm seriously thinking about buying my first new car. GM has 60 months 0% interest loans right now. I would be keeping the car for at least 10 years anyway, so why not? What do you guys think?
If you've never had a brand new car, I say go for it. You can treat yourself one time but don't make it a habit. The depreciation will kill you, unless you buy a high-end luxury or sports car. And also plan on putting 20% down so they don't try to make you pay gap insurance.
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post #10 of 12 (permalink) Old 02-24-2008, 08:17 AM
 
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People need to stop trying to keep up with the Joneses and really think about what they can afford on their own salary.
Exactly. People living beyond their means. Welcome to capitalism, commercialism, and more importantly, materialism. If you take a hard look at our society, practicality seems to have long since been burried. People beg, borrow and steal to have a lavish lifestyle. What happened to earning it?

I'm sure some on here would bash me for trading my Intrepid for an Ion. Understandable. But, unlike our society, I do keep practicality in mind. I got the Trep, first to get out of the minivan that had its share of problems, second we didn't want another van but needed something that could seat six (front bench), and third because I liked how the first gens looked when the came out so long ago. My trep was a car that suited our needs. And as the kids are aging and the older ones wouldn't be caught dead hanging with mom and dad, a smaller more efficient car is more practical. And lets not forget what I mentioned earlier about negative equity in two cars and fantastic financing on both new cars. Is a Saturn Ion my dream car? Nope, I'd love to get another Mustang, and so would my wife. But living in Upstate NY, where you can just about be guaranteed 6 months of winter, and having a family, a Mustang is not practical. My Ion is good for me. Its good on gas for commuting, its fairly comfortable, it has been thus far low maintenance, and best of all its interest free. I didn't buy more car than I needed (although there were some options I wished I bought), I didn't spend beyond my means, I didn't bank on some mystical financial windfall that will miraculously bestow itself upon me at some later date. What I didn't do was buy one because my neighbor had one. Frankly, I think we are the only ones on our block with a Saturn anything. I've never been one for "keeping up with the Jones's", and frankly I've never understood the mentality of it. People like that, to me, are nothing but phony anyway, putting up a good facade for all to see.
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post #11 of 12 (permalink) Old 02-26-2008, 02:49 PM
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Our '07 Aspen is our first note over 48 months. Its 72 months. BUT, the only reason is because Chrysler offered 0% interest for that time period. Now on the down side, the note was worth WAY more than the truck the moment we drove it off. Our first time also being "upside down" on a loan. There is probably a $15K difference between trade and loan balance right now. No a nice feeling. But It has a lifetime extended warranty and the wife plans to drive it for as long as possible (the '01 Intrepid, which we still have, only had 70K miles on when I took over driving duties. My '05 Ram 2500 CTD is a garage ornament now).
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post #12 of 12 (permalink) Old 02-27-2008, 09:58 PM Thread Starter
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Hey Froggy you're so right about it being an old article but with a bit of a new spin. I totally agree with everything you said and the reason I put this one up is just for the fact that they keep stretching the loans longer and longer and people keep getting in deeper and deeper (just like the mortgage industry which by the way I expect all of us to bail them out in the not too distant future; perish the thought that some bankers may actually lose some of 'their' investments eh?).

Some people just don't learn. I also think we're heading into some potential uncharted territory as far as the economy goes. I know things usually cycle out but this time I'm not so sure we'll rebound as we have in the past. As a nation we're in some deep shit and I don't think there are any easy solutions.
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