Honda Ridgeline Owners Club Forums banner

The State of Auto Loans

12K views 62 replies 23 participants last post by  WB77 
#1 ·
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.

 
#2 ·
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.
 
  • Like
Reactions: Goreds2
#6 ·
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.
 
#3 · (Edited)
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.
 
#4 ·
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.
 
#5 ·
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.
 
#11 ·
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.
 
#13 ·
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.
 
#15 ·
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.
 
#16 ·
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.
 
#18 ·
My "beloved" wife wants a new car and I thought it could be nice to give her as a gift a new Highlander, but I do not have all the money for that, at least for now. I am still thinking about a loan, do you think this is a good idea to have a loan, or I can better wait for another year to have all the money?
 
#19 ·
My preference would always be to pay for a vehicle in cash if it's an option to avoid paying any financing fees at all. Most people don't have the disposable $40-45k sitting around to pay for a vehicle in cash, so loans are the only way to go about it. If all it's going to take is another year of saving to have all of the cash to buy a brand new Highlander outright, then I would say wait. If you absolutely need a new car right now, that's a different story. Another option would be to pay about half in cash upfront and take out a 3-year loan at a very low rate for the remaining balance. You can pay that loan off at any time, so you could simply make larger payments to pay it off within a year. You'd have very low financing fees and would be able to enjoy the vehicle now.
 
#20 ·
With the low interest offered at the time of purchase, we chose the longer term loan and then will double/triple up on the payments. This is just insurance that if we unfortunately happen to end up in a financial crisis, we can more than likely keep making the required lower payments keeping us out of trouble.

Bill
 
#31 ·
With the low interest offered at the time of purchase, we chose the longer term loan and then will double/triple up on the payments. This is just insurance that if we unfortunately happen to end up in a financial crisis, we can more than likely keep making the required lower payments keeping us out of trouble.

Bill
Exactly what I do. I go as long as I can go and still get a good interest rate (typically 72 months) and make double payments. When I need a little extra money, I can pay the minimum. I typically pay a car off long before the loan term is reached...either by trading the car, or by making extra payments.

I put far too many miles on a car to be a long time owner. About 3 to 4 years is all I ever keep a car. By that time it's got 100k+ miles on it and it's getting to a point where major maintenance items have to be done. I don't want a car payment AND big maintenance costs, so I trade it off.

I view transportation as a "service", just like my cell phone, electricity, water, trash pickup, etc. There is a cost associated with getting where I want to go, and as long as the value that service gives me is greater than the cost I'm okay with it.
 
#21 ·
^^ This has recently paid of for us, too. We took out a 7 year loan on my wife's Highlander for the much lower monthly payment minimum. We typically pay about $150-200 more per month than that payment which has shortened the payoff time considerably. We still have about 14-16 months left to pay on it, but recent employment concerns have caused us to revert to the minimum monthly payment for awhile. It's just good to have the option.

As I've said previously, if you're taking a 7 year loan because that's the only way you can afford the car, you need to find a less expensive car. There is more than a good chance that at some point in the life of that loan, you will be upside down on the loan balance as compared to the value of the vehicle. Never take longer than 5 years to pay off any vehicle - period.
 
#22 · (Edited)
There is more than a good chance that at some point in the life of that loan, you will be upside down on the loan balance as compared to the value of the vehicle.
IMO there's some situations / strategies where being "upside-down" is OK or even advantageous.

For example, IF the loan rate is low enough AND you're using available cash for down-payment just to avoid being "upside-down" from the start, it may be advantageous to keep the cash working to earn you interest, knowing it's available if the car gets totaled and due to "upside down" the insurance payoff won't cover the loan payoff.

IOW, defer buying-down the loan amount, keep the 'cash' working for you, and factor-in advanced principle payments to reduce life-cycle interest paid net costs, particularly if you tend to keep vehicles longer than the expected actual time to payoff the note.

There's been times when I readily accepted making no / low down payment when offered a 0% or very low % loan under a manufacturer incentive program even knowing I'd be upside-down for a long time. And, as long as the interest payments on that low-rate loan compares favorably with what I can earn on my 'cash', I've made no accelerated principle payments, much to my overall long-term economic advantage.

Just saying that there's some strategies where being upside-down for a while and long-term notes may yield the best life-cycle economics; depends on individual situation, loan, rates, etc.

"Debt" per se isn't necessarily a bad thing as long as you understand how it may be leveraged to advantage over the long-run. Debt you can't resolve when things 'go south', on the other hand, should be strictly avoided (it isn't a valid tool for 'living beyond your means'). IMO.
 
  • Like
Reactions: zroger73
#23 ·
^^ If you're willing to take those sorts of risks and are diligent enough to constantly monitor your finances and take advantage of such situations, then go for it. However, I'm not one to take chances with being upside down on a car loan. I've never put any money down on any vehicle I've purchased. Mainly because that $4-5k, like you said, could be used more wisely elsewhere rather than buying down a car loan. But, owning $25k on a vehicle that may only be worth $20k at the time gives me anxiety. If that vehicle were to be totaled at any time and you don't have gap insurance, you're pretty well screwed. My wife's Highlander is still worth about $16-17k on a trade and would sell at a dealership for around $20-22k. We currently owe a little less than $10k which will be paid off in about 18 months or less. At least I know if the unthinkable were to happen to that vehicle that we would have a nice insurance check to go find something new.
 
#25 ·
However, I'm not one to take chances with being upside down on a car loan. I've never put any money down on any vehicle I've purchased.
If you've never put any money down and are never upside down on a car loan, then you must always be making high-equity, high-value trade-ins with every transaction?
 
#29 ·
Great article. With prices so high now for new cars, I often buy used. But new or used I never borrow more than $15K and I stretch it out 6-7 years so the payments don't exceed $250/mo. That way I can pay it down pretty fast and should I get in a bind, the payment won't kill me. Only time I paid cash was on my 2020 RTL-E, but my trade was paid off and covered most of the nut. Of course the finance office does their best to tack on all sorts of "protection plans" and extended warranties to up the amount if I finance and the pressure for me to buy in is firm, but I just keep saying "no thanks" or "maybe later". Bad enough average cost new is over $30K.
 
#32 · (Edited)
49.4% of all auto loans in Washington DC are delinquent by at least 30-69 days. That is a staggering number. Generally, the Midwest states gave lower default rates, while the southern states are getting hammered with delinquencies. The bubble is bursting. People who purchased vehicles over MSRP will have a rude awakening if they default on their loan.

Washington DC has the highest delinquency rate in the nation, followed closely by those states in the south eastern part of the US (New York, Virginia, Maryland, Georgia, Louisiana, and Mississippi). Utah has the lowest delinquency rate followed by North and South Dakota, Idaho, Wyoming, Vermont, etc. The bubble is bursting as too many people took advantage of the easy money and purchased vehicles that were beyond their means. In 2019 and 2020 the delinquency rates for the entire country were hovering around 2%. What an increase! I guess people used their Covid checks to buy vehicles, without any thought as to how they were going to continue paying off the loans. The repo man is going to be busy.

Never ever pay over MSRP for a vehicle. It might come back to really bite you, if you ever find yourself in default on a vehicle loan. When the bubble does burst, many owners will find out their outstanding loan balance is far greater than what the vehicle is worth.


 
  • Like
Reactions: WB77 and 14v6
#33 ·
Unfortunately the link in the original post #1 doesn't work any longer.
But I have never had an auto loan. Yes I have owned 16 automobiles, but 0 car loans.
My father told me at a young age to not ever finance toys, like cars, motorcycles, boats, snowmobiles, etc.
I heeded his advice, and wouldn't buy a vehicle unless i had the money to. While I do have debt, its land debt from buying the last 2,560 acres of farm land I purchased.
 
#34 ·
Unfortunately the link in the original post #1 doesn't work any longer.
But I have never had an auto loan. Yes I have owned 16 automobiles, but 0 car loans.
My father told me at a young age to not ever finance toys, like cars, motorcycles, boats, snowmobiles, etc.
I heeded his advice, and wouldn't buy a vehicle unless i had the money to. While I do have debt, its land debt from buying the last 2,560 acres of farm land I purchased.
It seems like you have a nice parcel of land and it pays for your toys. Glad you are in that position, most people are not.
 
#36 ·
I stick to the 60 month limit for myself. If I can't afford that payment, then it's too much. 60 months also, you eat the first 3 years if anything bad happens to the car as your usually upside down on the loan, after the 3 year mark, the loan is usually worth less than the car, so that helps.

I agree with just paying cash for a car, but I guess I just need to save more and spend less...
 
#38 ·
The Fed and government dramatically increased money supply and drove interest rates down to encourage economic activity during Covid. It appears people responded to the cheap money. Now rates are going up which is fine for existing owners if you keep your car for the length of the loan. But if you need or want to sell early, you will likely take a significant hit.
 
#39 · (Edited)
I know it's difficult to believe, but there are still some vehicles that are not sold before they hit the lot.

The Slowest-Selling New Vehicles
  • Ford Escape—52 Days to Sell (Avg.)
  • Alfa Romeo Giulia—52 Days to Sell (Avg.)
  • Chevrolet Bolt EUV—52 Days to Sell (Avg.)
  • Volvo XC60—52 Days to Sell (Avg.)
  • Ram 1500 Classic—57 Days to Sell (Avg.)
  • Dodge Durango—58 Days to Sell (Avg.)
  • Chevrolet Silverado 4500HD—60 Days to Sell (Avg.)
  • Ford Mustang—61 Days to Sell (Avg.)
  • Nissan Titan—64 Days to Sell (Avg.)
  • Ford EcoSport—67 Days to Sell (Avg.)
 
  • Like
Reactions: ToyTruck and WB77
#43 ·
I know it's difficult to believe, but there are still some vehicles that are not sold before they hit the lot.

The Slowest-Selling New Vehicles
  • Ford Escape—52 Days to Sell (Avg.)
  • Alfa Romeo Giulia—52 Days to Sell (Avg.)
  • Chevrolet Bolt EUV—52 Days to Sell (Avg.)
  • Volvo XC60—52 Days to Sell (Avg.)
  • Ram 1500 Classic—57 Days to Sell (Avg.)
  • Dodge Durango—58 Days to Sell (Avg.)
  • Chevrolet Silverado 4500HD—60 Days to Sell (Avg.)
  • Ford Mustang—61 Days to Sell (Avg.)
  • Nissan Titan—64 Days to Sell (Avg.)
  • Ford EcoSport—67 Days to Sell (Avg.)
What is the source and timing of this data?
 
#40 ·
The folks on YAA say the average transaction price last month is 48k. Who can afford that? Who can even afford a used car? Good news is that the trend is reversing starting with used cars, all segments at the wholesale (auction level) were down week over week. It will take time to to hit the market pricing but change is on the way.
 
#42 ·
One lending institution has come out with what they call:
Declining Rate Auto Loans

Imagine your interest rate falling each month as you make your vehicle payment. With our new vehicle lending program, your interest rate will decrease with each on-time payment. By financing the purchase of a new vehicle, or refinancing an existing auto car loan, members will save even more money each month. Simply submit your on-time payment and watch your interest rate fall.


This same bank linked above has a 60 month loan for 3.49%, 72 month at 3.74%, 84 month at 4.49%. I am not sure what the loan territory is, and I am not suggesting that those rates are the best options. I have no idea why a bank would offer this feature. They must be making money somewhere down the line.
 
#45 ·
I was in a small city called Prince George today, drove past the Ford dealer, and their huge lots are jammed full. They have over 300 vehicles for sale, mostly brand new. It doesn't seem that my area has had this inventory problem of new vehicles, like so many places. Also drove past the Subaru dealers FULL lot, and the Ram/Jeep/Dodge FULL lot. The Chevrolet/GMC, and Toyota lots were only half full. I didn't drive past the other dealers, and I had no business to do in their area. Even a year ago it didn't seem like there was a shortage. I wonder why the shortage hasn't hit central BC so hard?
 
  • Wow
Reactions: Sparkland
#47 ·
Lending institutions are setting aside hundreds of millions of dollars to protect themselves from delinquent loans. Companies such as Lithia, Credit Acceptance Corporation (subprime loans - profits fell 63%), and Ally Financial are all incurring paper losses because of this money they are setting aside. Don't believe what the media is telling us, follow the money.

 
  • Like
Reactions: 14v6
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top