cancel
Showing results for 
Search instead for 
Did you mean: 

Americans Are Taking Out Ridiculously Long Auto Loans

Highlighted
Senior Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans

Well I think that there are many factors involved. Of course there's the age old keeping up with the "whoever" it is these days, or even trying to out do them. Some don't want the hassle or work involved woith finding the right deal, hence CPO or Late Model car that's often thousands cheaper than new. It also doesn't fit within the "gotta have new" or "impress the neighbors" mentality. 

 

It also doesn't help that cars are so much more expensive than even ten years ago, they keep finding add ons to up the price. When in reality the car just needs to drive from point A to piont B. We're not piloting these things to the moon for crying out loud, yet the computers on board are ten times powerful than on the old Space Shuttles! lol

 

So a car that would have fit perfectly into a standard 4-5 year Loan, now needs almost 7 years today. To make the payments manageble for most consumers. Problem is that spending beyond their means seems a given anymore, like it's just something that's done without thinking.

When I search for a car, I look for something that I know I can afford the payment on. And I generally give myself a $100-200 buffer just in case. Maing it so that my payment is the exact amount I have leftover every month is asking for trouble. And I believe that some people base their payments on an unadjusted income. Or their unexpected expenses arise far too often, if so many are behind.

 

72 or 84 month loans are nice, if you plan to actually keep said car that long. Problem is most people treat fixed car loans like Leases these days. It also helps to have a down payment, which it seems that most don't. Or only a measly $1K. And that's small change considering the interest being tacked on, especially if it's a rather high APR.  Then they wonder why they're upside down. 

 

At the end of the day it may all just be about percieved state of mind. A person might be borderline broke, but they're riding in their dream car? They also might have their dream house? With the ever presence of an uncertain tomorrow, more an more people choose to live for today?






Message 31 of 73
Highlighted
Senior Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans


@Janus wrote:

 

72 or 84 month loans are nice, if you plan to actually keep said car that long. Problem is most people treat fixed car loans like Leases these days. It also helps to have a down payment, which it seems that most don't. Or only a measly $1K. And that's small change considering the interest being tacked on, especially if it's a rather high APR.  Then they wonder why they're upside down. 

 


I agree with just about everything you say, but this point - I generally drive my cars into the ground - I'm in my 40s and I recently bought my third car (ever).    Even then, I went with a 60 month note just because the idea of being in debt for 72 or 84 months, even though I'll happily drive a car 13 years give me hives.   If something catastrophic happens which impacts your finances, that's a hell of a sword hanging over your head.

I do think the "treating a fixed car note like a lease" thing is huge.   The majority of people I"m around (both coworkers, colleagues, acquaintances, family) seem to get brand new cards and then turn them in in two years to get the next brand new car.   So they've got to finance where they're upside down and the new vehicle.  It's insane.    When I see whatever relative posting their newest dually knowing they just turned in their mustang for it (because they've suddenly decided they need a truck) I want to shake them.  But you can't fix stupid.   They should be leasing, but leasing has a bad rap (which it definitely earned in the past, but from friends who do lease, it seems to have gotten better).

I will say that while recently car shopping that I was pretty dismayed at how bad pricing has become (downside of not having a car note for 10 years, haha).    A lot of it has to do with new safety and government features as well as them just getting fancier.   I don't really want/need things that are required, I don't really need/want a lot of the things that are just standard now.   And, unfortunately, I could either not find a used car I liked/needed or if I found a car I liked, used cars were not that much less expensive than the new ones.     I got a deal I'm happy with, because I know the guys I was working with, but even working with friends they could not find a 'base model' anything that I wanted, used or new.

 

I am fortunate to be in a good financial place, I did not finance a crazy expensive car, and yes, I do some of my own repairs, so I'm better off than most, but I think the long loans are a mix of bad decision making and markets forcing more expensive cars.    Look at all of the manufacturers pulling out of the sedan and subcompact market.   Not everyone wants/needs an SUV, and yet...

F8 EQ: 805 | EX: 800 | TU: 795 | Accounts: 0/6 2/12 9/24
Happy practitioner of AZE5or6or7or8
Message 32 of 73
Highlighted
Valued Member

Re: Americans Are Taking Out Ridiculously Long Auto Loans

Can I also add that the prices of vehicles have gone through the roof??? For example, around 2002 we bought a loaded Ford Expedition, and it was a more expensive car, but reasonable and we could still afford it (can't remember what the price was). We sold it when it had about 210k miles on it, and it was still in great shape. Last year when our truck was in the shop after getting rear ended, we got a brand new loaded Ford Expedition for a rental. It had countless doodads and gadgets, and was pretty comfortable driving around town with the kid and whatnot, so we thought 'huh, maybe we should look into buying another Expedition', and we pulled up the dealer info, that exact SUV would have cost us $70k+. And they didn't even offer a V8 version or 4WD (we're in the mountains).

 

$70k Smiley Surprised

 

I would dare say that over half the new vehicles on the market right now would be unaffordable for most people if it wasn't for these longer terms, they're treading on mortgage territory really.

 

EDIT: the truck that was rear-ended was an '08 dually (fully loaded, cummins etc.) with 320k miles on it, initially the insurance company (USAA) balked at even fixing it, until they looked at the replacement value, replacing that truck with a comparable new one would cost $85k, vs ~$5k of body damage and a new rear-end. It's paid for and still hauling horses. I will keep that truck alive till it literally falls apart, I'm not about to pay a small mortgage to replace it......

Chase Freedom - $6.7K SL - Opened 10/2008
Paypal Smart Connect - $1.9K SL - Opened 06/2009
USAA Rewards - $12.6K SL - Opened 02/2011
Syn Care Credit - $18K SL - Opened 05/2017
Chase Amazon - $2.3K SL - Opened 07/2012
Chase Slate - $4.2K SL - Opened 06/2019
NFCU Platinum - $18K SL - Opened 06/2019
NFCU Flagship - $25K SL - Opened 09/2019

Fico 8 (USAA/Discover): 706 (09/2019), 716 (05/2020)
Fico 9 (NFCU): 738 (10/2019), 782 (05/2020)



Fico 8 3 bureau (Creditchecktotal): EX-709 EQ-723 TU-723 (10/2019)

Message 33 of 73
Highlighted
Frequent Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans

Car dealers are predatory by nature. I am shocked they are not regulated, tbh. This probably accounts for people buying cars they really should not be buying and they are tempted by these long loan terms. 

 

Personal cards:
Amex Blue Cash Preferred | Capital One Quicksilver VS | Chase Freedom VS | Chase IHG Select WMC | Discover It | NFCU CashRewards MC | US Bank Cash+ VS
Business cards:
Amex Blue Business Cash (Hidden TL)
Total Credit Lines: $150K, DTI: 1%
In the Garden!
July 2020 FICO 8 Scores: EX 808 | EQ 820 | TU 820
Will answer questions about underwriting.
Message 34 of 73
Highlighted
Senior Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans


@calyx wrote:

But you can't fix stupid. 


Lol, no you can't!

Need a new a/c, need to fix the porch steps, need health ins., need to work longer hours.....no problem, I look good in this here new truck. (says friend going through middle age crisis)  I know what he's NOT thinking with. Smiley Frustrated 


"MY TAKE HOME PAY WON'T TAKE ME HOME"
Current Scores: Exp 736/Eq 744/ Tu 756
Message 35 of 73
Highlighted
Moderator

Re: Americans Are Taking Out Ridiculously Long Auto Loans

Actually, you can fix stupid. Most of us are here because at some point we were stupid. 

 

Consumer can be blamed for not doing research and math needed to understand all the possible ramifications of their actions. Lenders and dealers could use simpler and by far clearer disclosures. 

 

With that said, those who want things they cannot afford in a highly commercialized society, and those willing to egg them on usually go hand in hand 

07/11/2020 Confession time...sometimes I dont put shopping cart back where it should go, and I stole lipstick when I was 11. Used it for drawing (works better than watercolors).
Message 36 of 73
Highlighted
Senior Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans

It does make you wonder sometimes how the Auto industry can be in trouble with prices like that. 






Message 37 of 73
Highlighted
Super Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans


@Janus wrote:

It does make you wonder sometimes how the Auto industry can be in trouble with prices like that. 


It's because Hyundai and Kia don't have prices like that. Smiley Happy

Message 38 of 73
Highlighted
Moderator

Re: Americans Are Taking Out Ridiculously Long Auto Loans


@kilroy8 wrote:

@Janus wrote:

It does make you wonder sometimes how the Auto industry can be in trouble with prices like that. 


It's because Hyundai and Kia don't have prices like that. Smiley Happy


@kilroy8   You're going to make a beautiful cat lady one day Smiley LOL

07/11/2020 Confession time...sometimes I dont put shopping cart back where it should go, and I stole lipstick when I was 11. Used it for drawing (works better than watercolors).
Message 39 of 73
Highlighted
Super Contributor

Re: Americans Are Taking Out Ridiculously Long Auto Loans

Yikes, wet and windy nor'easter heading toward our New England friends.

 

Sasha, get that sump pump primed up.

Message 40 of 73
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.