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A good read. It's just like housing in the early 2000's, so why not on a smaller scale with cars. IMO, if you have to take out a 7 year loan to get a new car, you are in over your head in most cases. Just buy used or lease. Now I see why dealers hate cash buyers, bypases the whole system an uproots the game.

 

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A good read. It's just like housing in the early 2000's, so why not on a smaller scale with cars. IMO, if you have to take out a 7 year loan to get a new car, you are in over your head in most cases. Just buy used or lease. Now I see why dealers hate cash buyers, bypases the whole system an uproots the game.

So true, @14v6! I frequent the Subaru Ascent forum (new SUV from Subaru) and so many people are talking about car payments over $500/month. That's a significant amount of money for a couple with a $2000+/mo mortgage.
 

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Yeah, a good read, thanks for posting.

I appreciate that the article discusses both cost factors that are beyond consumer control and buying decisions that are within the consumer's control if they take care to exercise restraint / 'live within their means'. IMO when it gets down to it, too many fail to exercise the latter with unfortunate outcomes.

Agreeing that much (most) of the new vehicle market and marketing is aimed at higher-priced vehicles, I still see 'basic' vehicle options available from many manufacturers which can fulfill essential family transportation needs. But yeah, that seems to be a shrinking opportunity.
 

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Nothing new really. Some auto mfr's have been doing 8 year loans for a long time. Think Navigator, Expedition, the extra large SUV's and the expensive trucks. The auto loan industry has been talking about a balloon in the waiting, a la housing collapse, calling it the auto loan collapse that's not if, but when. Some people want their extra large SUV for image purposes and they'll do anything to get it, including rolling debt into a new loan that has an 8 year term. I've read about 10 year terms also, which is just crazy.

Add to that the cost of vehicles going up and up. ADAS (automated driving assistance systems) bring more complexity, more ECU's, more sensors, and much more cost. Average price of a new vehicle in the US used to be 30k, it's now 37k, and the mfr's are already predicting 40k average price next year with many auto mfr's putting ADAS as standard equipment on their vehicles, even the lowest trim, pushing that average cost to 40k.

But these facts, figures, and warnings don't define all. I've run 2 loans at one time many times in my life. No terms more than 60 months, 5 figure down payments, and I don't eat outside my kitchen and don't spend my discretionary income the way most do, ie going out to eat a lot, shopping, wasting fuel driving around doing nothing. A lot depends on the individual. I can definitely see someone wanting a Cayman or higher end vehicle, and making the sacrifices necessary to make it affordable. Cutting out pricey vacations, eating out, etc. And some elect to not have children, so that's another massive expense they don't have. But the vast majority, yes, the facts or figures don't lie, they are stretching themselves too thin to keep up with the joneses and the auto loan bubble will burst at some point. I have friends in banking and the banks are already planning for an impending recession.
 

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Yeah, my Brother in law just purchased a 1 year old Expedition Limited used for like 50k (don't worry, he can afford it). Brand new it was 70k. Ford has a lot of nerve charging 70k for that and now those Lincoln's are getting close to 100k and people just pay it, crazy.
 

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So true, @14v6! I frequent the Subaru Ascent forum (new SUV from Subaru) and so many people are talking about car payments over $500/month. That's a significant amount of money for a couple with a $2000+/mo mortgage.
Yikes! The $500 car payment I can swing...but the $2000 house payment is pretty high. My house payment is $1400 and I only put down 3% and did a FHA loan so I have MPI in my payment. Once that drops off I'll only have about a $1200 house payment.

My first house I ever owned was $510 a month...my car payment was $600. LOL! :)

But I'm a gear head. As I am preparing to purchase my Ridgeline and hand my Ford Escape down to my daughter, that will give me three cars and a motorcycle.
 

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Yikes! The $500 car payment I can swing...but the $2000 house payment is pretty high. My house payment is $1400 and I only put down 3% and did a FHA loan so I have MPI in my payment. Once that drops off I'll only have about a $1200 house payment.

My first house I ever owned was $510 a month...my car payment was $600. LOL! :)
My daughter pays $3,125/mo rent for a one bedroom apartment in downtown NYC. Ouch.
 

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My daughter pays $3,125/mo rent for a one bedroom apartment in downtown NYC. Ouch.
ouch!

In Honolulu the median single family home is 835 K. CASH is King 👑
 

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My daughter pays $3,125/mo rent for a one bedroom apartment in downtown NYC. Ouch.
Hope her job is worth it.:) that's a tough one without building equity I commuted to the city from Westchester and then Long Island for over 20 years. Between the monthly train ticket, subway and parking it was like a car payment itself. I sold my Long Island Home for 500k back in 2004. It was a 1500 square ft split ranch/shack. The buyer took out a primary and secondary loan and took 5k from the secondary loan and used that to make the down payment. With the taxes and PMI I estimate his monthly payment on the home to be close to 4k/month before any other expenses and he had a 5 series BMW! I sweated out that closing, didn't know how he could afford it being so highly leveraged. I knew that those home value were insane so decided to cash out (was the fortunate recipient of home appreciation) and for me nothing was the same after 9/11 a little voice in my head kept on saying "get out."
 

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I’d be curious how many people in the data are taking these loans long term but amortizing them shorter. I’ve never paid less than the equivalent 60 month payment, but have taken 72 month terms because the interest rate was the same, and the lower required payment is a free risk reduction.

Now that I type that, it’s probably just one person, and the rest never pay them off and roll forward negative equity like it’s a pie crust.
 

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I’d be curious how many people in the data are taking these loans long term but amortizing them shorter. I’ve never paid less than the equivalent 60 month payment, but have taken 72 month terms because the interest rate was the same, and the lower required payment is a free risk reduction.

Now that I type that, it’s probably just one person, and the rest never pay them off and roll forward negative equity like it’s a pie crust.
That's exactly what I do. My last two vehicle purchases were at 0% and 1.9% interest. I do the 72 month term but always pay extra each month to pay off early. My current vehicle was bought new in 2016 on a 72 month loan but will be paid off next year.
 

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After truck is paid off, the big key is to keep it as long as possible and keep paying yourself those same payments then pay cash for next truck. See my signature.
 

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My daughter pays $3,125/mo rent for a one bedroom apartment in downtown NYC. Ouch.
That's $1045 more per month than my annual take home ($2080 per year) for my first job working at a 24-hour truck stop back in 1966. Free room & board at my parents' house certainly help.
 

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Everybody's financial situation is different. Agree with a lot of what was said previously. IMO, the key is to know your financial limits and be disciplined. That is much easier said than done for most folks though. I know too many undiscipled people and they live on the edge all the time when they really don't have to. A guy I used to work with was the keeping up with the Jones's type. He and his wife had 2 cars that were $40k and $45k MSRP new each and were paying $750/mo for each. One of the two they even got a year old and leased it. $1500/mo for two car payments, which was about the same as their mortgage. Part of their problems were credit scores, the other was rolling negative equity from one vehicle to the next. Really poor financial decisions because they wanted new cars every 2-3 years. They also each had 6-8 credit cards at a given time with balances up to a couple grand.
 

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Everybody's financial situation is different. Agree with a lot of what was said previously. IMO, the key is to know your financial limits and be disciplined. That is much easier said than done for most folks though. I know too many undiscipled people and they live on the edge all the time when they really don't have to. A guy I used to work with was the keeping up with the Jones's type. He and his wife had 2 cars that were $40k and $45k MSRP new each and were paying $750/mo for each. One of the two they even got a year old and leased it. $1500/mo for two car payments, which was about the same as their mortgage. Part of their problems were credit scores, the other was rolling negative equity from one vehicle to the next. Really poor financial decisions because they wanted new cars every 2-3 years. They also each had 6-8 credit cards at a given time with balances up to a couple grand.
And for some owners, that’s reasonable...for a household income of $180k, $1500 in car payments is affordable (10% of gross). Not necessarily wise or responsible, but it shouldn’t be a burden. Of course for many with those payments, that is not the case.

One of my favorite things about Honda as a brand is it is a very diverse group of owners. I know 2 partners in large firms with 7-figure earnings annually who drive Honda’s (one is a Ridgeline!) and I also see 100s of old Honda civics and Accords in student parking lot every day.

If you derive a lot of your status in life from the nameplate on a car, I don’t think Honda is for you. That said, it was the first brand we bought new, and we’ve done it repeatedly since because the values hold so well for trade-in.
 

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I’d be curious how many people in the data are taking these loans long term but amortizing them shorter. I’ve never paid less than the equivalent 60 month payment, but have taken 72 month terms because the interest rate was the same, and the lower required payment is a free risk reduction.

Now that I type that, it’s probably just one person, and the rest never pay them off and roll forward negative equity like it’s a pie crust.
This is exactly what I did with our Highlander. The previous two vehicles we purchased (my RL and my wife's 05 Accord) were both purchased as pre-owned vehicles. The purchase prices were extremely affordable and we simply did 5-year term loans. We paid off the Accord in 3 years and the RL in 3.5 years (it's been fully paid off for over 6 years now). However, when our son was on the way, we needed something with more room - a family hauler. Hence, the Highlander. Even though it was pre-owned as well, it was by far the most expensive vehicle either of us have ever purchased. We would have had no issue whatsoever making the payments on a 5-year term ($575/mo), but our credit union's rates at the time were only 0.25% more for a 7-year term. The payment was dramatically lower, too, at $425/mo. So, we went with the 7-year term, but simply pay at the equivalent of the 5-year term.

Our main thinking for doing this was that, well, kids are expensive and we may have a month or two where we would need that extra money for child care or whatnot. It's been 3.5 years since we bought the Highlander and, luckily, have not had this situation happen although we're shelling out $1250/mo for day care. At the rate we're paying, the lien will be fulfilled in about 16 months. If you're signing up for a 7- or 8-year term because that's the ONLY way you can actually afford the vehicle you're buying, that's the WRONG way to do it.
 
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