This is the outrageous extreme of the automobile business in the U.S.
https://screen.yahoo.com/new-york-times/no-credit-no-problem-162219272.html?vp=1
Long term financing is a bottomless pit for a great many Americans.
Don’t finance stuff that always DEpreciates if at all possible! The car payment merry-go-round is a lot like drug addiction, bad for you, expensive and a tough habit to kick!
How else can they provide the apparently requisite illusion that they are keeping up with the Jones’?
What kills me is when it is accused to be predatory lending. They should have known I couldn’t afford it!! It’s their fault for lending me the money!! McDonald’s also forced me to eat Big Macs every day and that’s why I am obese…
Auto loans for geezers like us doesn’t make sense. But my 22-year old daughter wants to buy a CX-5 Sport and I encouraged her to get a loan for at least 80% to build a credit rating. I also told her to discuss it with her credit union and see what the interest rates are for different down payments. Maybe she will be the best rate at 40% down. And she should also discuss how this will help her generate a top notch credit rating. Loans are a good thing - for younger folks.
Some may remember the old days when new cars were financed over 36 months. Car prices started climbing dramatically due to regulations and add-ons so financing was then stretched to 48 months so as to hold the monthly payment down. Now it’s 6 years to infinity…
The vast majority of car buyers are only concerned with the per month payment and that can often leave someone on the hook as far as the total price is concerned.
That per month gimmick is also why you see most ads touting that payment in large numerals and the fine print is illegible.
The manufacturers market the most expensive models that will sell and long term financing results in them offering some awfully grand vehicles. The first car that I ever financed was a 1965 Plymouth Valiant in 1966. It was a repossession that cost me about $2,000 and that cost me about $70 per month for 24 months. The amount of the down payment totally escapes me but it must have been $500+. I was able to make the payments from one weeks pay check while working and going to high school. The hometown bank where I had a checking account financed the car.
What would a comparable car cost today and could a high school student buy it?
The Fiat based MoPar pickup brought me to bring this issue up again. The manufacturers have no incentive to offer truly affordable models.
I saw that video on FB yesterday. It’s difficult to feel bad for people who evidently didn’t read what they were signing. Here in Florida, and in neighboring Georgia, there are disclosure laws about car loan documentation showing specific figures, like APR and how much customers will pay in total when they’re done making car payments.
Predatory car loans have been around as long as I can remember, probably becoming more popular when Bill Clinton and the Republican Congress deregulated the banks, making these loans, and their bundling with other assets, legal. I knew people who were signing up for predatory car loans in the 1990s
The used car market has always had its share of shady characters, especially at “buy-here-pay-here” used car lots. The only thing that is even relatively new is that the big banks are getting into the act.
Getting a lower interest rate is one of the few perks of buying new.
People get in this mindset of wanting the latest and greatest…NO MATTER WHAT.
When I was growing up we were at the high-end of the lower income bracket. Could never really afford much extra in life. But my parents worked very hard to provide us with the essentials. I learned early what those essentials are…and how to get them. When I started in the working world…I swore I would stay out of debt as much as possible…That meant that I would buy used vehicles for a while until I could afford to buy a new one with Cash. I ALMOST achieved it. My used car died…and I had enough saved that all I needed was a $2000 loan for a new car. That was my one and only car loan. Each month my wife and I set aside money to put away for a future vehicle purchase…then we buy what we want…and keep it for 300k + miles. I tried to instill that in my kids. When my daughter graduated graduate school…she got a real good high paying job as a chemical engineer. She bought herself a Toyota Corolla. She had saved some money during her time when she got paid on a couple research projects, but she had to take out a small loan to pay for the car. Meanwhile a couple of her co-workers who also just graduated…went out and bought themselves BMW’s…and now have these crazy car loans…Right now they are driving the better more expensive car…but 20 years from now…they’ll be in debt…and my daughter will be driving a BMW that she bought CASH.
I do think these loan scams are predatory…I also think that the only way to get rid of them is to educate the masses.
My 1968 bare bones Valiant cost $2,750 new. Inflation adjusted, today it would be $18,000. For that you now get a vastly better car.
“Some may remember the old days when new cars were financed over 36 months”
I told my daughter to put enough down that she could pay the loan off in 2 to 3 years. I still think that 3 years is the longest anyone should go on a car loan. A $20,000 loan at 5% would be $600 per month for 3 years and a $16,000 loan would be about $456. She teaches school and should be able to afford either. Another advantage is sticking to shorter term loans is that you don’t overspend. If she went for a 6 year loan, maybe she could afford a BMW X3. But to me, that is a waste of good money.
The insidious thing about auto loans beyond 3 years is they increase the length of time you’re “upside-down” on the loan.
This is exactly why we have an in-house team of six full time repo men ( collectors ? they are authorized to take cash and choose not to repossess ).
They have those F350 pickup mounted car hoists and will pull their truck right out from under them while they’re putting the groceries in !
People don’t read…or don’t care about…the contracts. They pay what they feel like and stop !
I was an absolute fool and ALMOST bought a new dodge ram. It was the most bare bones, stripped down model on the lot. And foolishly - because I’ve never bought new or knew much about it, I was negotiating based on the monthly payment. I figured hey, $325 a month for a brand new truck with zero problems and a warranty, I can make this work. Well what I didn’t realize that was with every back and forth motion of monthly negotiations, the dealer was adding time to the loan. Thank God, I saw that they had me up to 7 years right as I went to sign the final document. The whole time here I was thinking that we were sticking to 5 years, and they didn’t even mention time addition until the fine print, sign your life away time. So the manager tries to “throw in some floor mats” to make it up to me (I was angry that they were incredibly misleading). I said no deal and left. Went and bought a used f150 with 115k on the clock for $4300 and I am so happy I did.
But hey. I’ll admit it wide open here. I was an IDIOT for coming that close to that deal, AND for negotiating the monthly payment. Those of us that are young and inexperienced when it comes to new car buying think about what kind of monthly payment we can commit to.
What got me in the door was a lease deal of 2 grand down, 200 a month on the radio. Then they acted like they never heard that special, and that a lease would be more like 280 a month after all taxes and fees, and thats when I thought well why don’t I buy for a little bit more a month, and actually OWN the thing!
Foolish and typical logic for someone “green”. Hook. Line. Sinker.
I have friends and colleagues who are professional, educated people, who, when shopping for a car, only ask what the monthly payments will be. This has never made sense to me. The only thing I have ever financed is a house and then I saved until I had a good down payment and paid ahead on the mortgage to cut what I had to pay in interest. While I really didn’t like renting a place to live while I saved to make a good down payment, I hate “renting” money even worse.
I started my marriage with a used television set (cost $25), hand me down bedroom dressers, a high fidelity system with used components which cost me about $40, and a 1965 Rambler which I bought for cash in 1965 for $1750. My income for 1965-66 was $6000 for the academic school year. I made sure to teach summer school which brought my income up to about $7500.
We lived in an apartment that cost us $88 a month plus utilities. Rather than invest in things, I decided to invest in myself. I signed up for courses to take while I was teaching and this paid off–I was able to transfer the credits to the university where I did my second round of graduate school and cut a year off the time it would take to complete the program for that degree.
I think we should teach students from the time they are in elementary school what it really costs to borrow money. Many young adults have no idea how much they pay in interest when they make purchases on credit.
Because they were–literally–children of The Great Depression–my parents had the exact same philosophy as Triedaq, and to a very large extent…I do also.
When I was in my undergraduate years, I took the bus to college each day.
When I graduated college and secured my first job, I was intent on buying a car right away for the 60 mile roundtrip daily commute. However, my father sat me down and gave me a very valuable lesson in personal economics.
He told me that buying a car before I had begun to amass any significant savings would put me behind the proverbial eight ball, and that this condition could continue for…many years…due to finance charges. His advice was as follows:
“I rarely use the car during the week, as I almost always walk to work.
Use the family car for at least 2 or 3 years, and save your money so that you can pay cash for your first car. You will be in a much better financial position for the rest of your life if you can defer the desire for a new car until you have the money to pay cash for it”.
Being a very compliant son, and respecting my father’s advice, I did as he said to do.
Not having a car on weekends was not great, but because so much of my weekends were taken up with writing lesson plans and grading papers, it wasn’t too bad, and my friends came to my rescue with their cars when we went out “on the town”.
The bottom line is that by following my father’s advice, I was able to pay cash for that first car, and for all of my subsequent cars. Trust me…the absence of finance charges has made a major difference in my finances for the past…40 years or so.
@Triedaq, $6000 as a starting salary in 1965 was very good money. When I started my first job out of college in 1974, I made about $8000. In about 1976 I passed my Mom, who made about $9000 after 20 years on the job. By then, you were probably way past $10,000. I know that now university employees in my field are the worst paid as a group, followed by the government. You must have been a star to get such a well paying appointment.
@jtsanders—The salary wasn’t great for 1965, but I could live on it and save a little bit of money. There were four of us who were considered “temporary” faculty at the time and each of us received that salary. Summer school was a big program at the university where I taught in those days and they begged us to do summer teaching.
My parents came through the depression and my brother and I learned the importance of saving money. One of the best moves I made with my money was to take courses while I was teaching. I paid the tuition and did the work so that the course credits would be on a transcript. This paid off in three ways:1) after 3 years, I became an assistant professor instead of an instructor and my salary increased to $8300; 2) the summer before I went back to graduate school, my department chair called me in and asked me to teach the courses I had taken. The professor who normally taught the courses had a research grant and that professor recommended me to teach the courses he had taught; 3) I cut a year off my doctoral coursework because of the courses I had taken.
After I had completed the necessary coursework in two years, I saw that the job market was getting tight. I called back to my department chair and was offered a job on the telephone. I accepted and finished the dissertation while I taught a full load of courses.
One thing that bothered me in my last years before I retired was that new faculty members were hired at lower rank, but given light course loads and a higher salary than what I was being paid. When I pointed this out to the person who was the department chair at the time, I was told that these new faculty were doing research. I then produced my vita with my publications and said, “Here is my research. What have these new faculty published?” I was then told, “We have to give them time to establish their research agendas”. When I decided to retire, I wrote my letter and attached reprints of the publications I had over my last five years, my student evaluations which were quite high, and my list of the committee service I had given to the university including chairing some major committees. I put a note on top of this that read: "This represents geezer power. What are your new faculty doing?"
I miss the students and I am still working on a couple of articles that I hope to publish, but we had enough saved to retire and I got tired of university politics.
At any rate, my lifestyle of paying as little interest as possible to banks by paying cash for every purchase except for the mortgage on the house has served me well. When I need to buy a car, I choose what I want and say to the dealer “This is a simple transaction. I have some money and you have a car. How much of my money is it going to take to buy the car? Please understand that I will be visiting and have visited other dealers. If you have the best price, I will be back within the week to buy the car”.
Wonder if this means that, in a few years, prices of new/used cars will plummet, and dealers won’t be able to GIVE cars away. While banks ask for another bailout and their CEOs take $100 million in bonuses
@bscar–This may happen, but I would bet that the next bubble to burst will be higher education. Much more is owed on student loans than on automobiles. Of course, the CEOs in any event will get the $100 million bonuses.
Triedaq
7:14PM
That was a great story. When I did my night college in the late 70’s, we had a labor economics book written by a professor.
He discovered that his new asst. professors were making more money than he was. He decreed that all salaries would be posted on the bulletin board. Then, he investigated to see why the new guys got more. At that time, they were investigating the market so knew what the offers were. After he got tenure, he no longer kept up with salaries. So, they paid him less.
He also studied how companies use the same tactics to minimize ‘merit pay’ levels. He discovered that studies show there is random correlation between merit pay as rated by the supervisors, and actual performance as measured by neutral outside researchers. He actually understood why unions demand equal pay. Merit pay measurements are an illusion anyway.
Sort of like knowing what the actual selling price on a new car at the time you are buying, but not otherwise.