Author Topic: Median car loan hits 68 months and $30k.  (Read 5965 times)

nereo

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Median car loan hits 68 months and $30k.
« on: September 07, 2016, 05:41:32 PM »
I was listening to Markeplace (NPR) today and a statistic they gave completely blew me away:

In Q2 of 2016 the median car loan in the US is now 68 months (5 years, 8 months), and $30k.  Both are highwater marks.

https://www.experianplc.com/media/news/2016/q2-state-of-the-automotive-finance-market-report/

gimp

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Re: Median car loan hits 68 months and $30k.
« Reply #1 on: September 07, 2016, 06:30:14 PM »
Isn't this really close to the average debt for college grads?

Hmm....

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Re: Median car loan hits 68 months and $30k.
« Reply #2 on: September 08, 2016, 09:26:24 AM »
And yet, student loan debt will be stretched out as long as possible. ;) (so they can buy the vehicle)

jinga nation

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Re: Median car loan hits 68 months and $30k.
« Reply #3 on: September 08, 2016, 09:46:20 AM »
https://www.marketplace.org/2016/09/07/economy/car-loans

Quote
Just how healthy is the auto loan industry?

The total outstanding debt for new and used auto loans, as well as leases, climbed to a record high of $1.027 trillion in the second quarter, the credit bureau Experian said.

The share of subprime and deep subprime loans, aimed at borrowers with poor credit, increased within that broad pool of outstanding debt.

But Melinda Zabritski, senior director of automotive finance at Experian, said subprime borrowers' share of new loans dropped compared to the same quarter last year. The share of deep subprime loans, for borrowers with credit scores as low as 300, was unchanged.

“If you look at the entire market, loans and leases combined, the market is very, very prime,” she said.

Experian's latest State of the Automotive Finance Market report suggests that what’s going on in the subprime part of the market isn’t cause for alarm, even though 30 and 60-day delinquencies climbed.

“We're still at very low historical levels of delinquency,” Zabritski said.

It’s worth noting that over the past year, Experian changed its standards for what it considers subprime and deep subprime, taking a more lenient tack on what category borrowers would fall into

“The ranges shifted to simply be consistent across the industries Experian analyzes," Zabritski said in an email.

Chris Kukla at the Center for Responsible Lending is worried that those subprime and deep subprime borrowers will get into trouble.

According to Experian, the average term on all new car loans is 68 months. Kukla said that’s up from more like 62 months a few years ago.

Meanwhile, the average monthly payment for both new and used vehicles is climbing.

Kukla said the picture looks yet worse when you consider that some subprime borrowers are paying auto loan interest rates above 20 percent.

“You put all those things together, and that's a recipe for folks not being able to repay their car loans,” he said. “And it means that eventually the number of people losing their cars could significantly increase.”

What’s more, he said, people often need their vehicles to get to work, so they might sacrifice other important expenses to pay off loans that exceed the value of their cars.

Jenna Grodecki in Kalamazoo, Michigan, isn't crazy about the financing terms she got from a credit union this past April to purchase a 2013 Ford Fusion. She's 25, and though she isn’t a subprime borrower, she does have a lot of student loans.   

To get the size and quality vehicle she wanted, Grodecki had to take a loan term of 76 months — more than six years.

“At that point in time, it was kind of the only option that I had,” she said.

Grodecki said she hopes she’ll eventually earn more and can pay it off faster. Meanwhile, she said she advises friends not to make the same mistake.

Follow Annie Baxter at @anniebaxter123.

nereo

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Re: Median car loan hits 68 months and $30k.
« Reply #4 on: September 08, 2016, 09:49:52 AM »
https://www.marketplace.org/2016/09/07/economy/car-loans

Yeah, the story focused on the sub=prime auto lending and how it's (arguably) not a big factor in the general economy.  BUt the stat on auto-loans isn't limited to subprime loans.  The story just quickly threw those figures out and I was like "wait, ...what?? it's that long??!"

TheAnonOne

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Re: Median car loan hits 68 months and $30k.
« Reply #5 on: September 08, 2016, 11:50:43 AM »
https://www.marketplace.org/2016/09/07/economy/car-loans

Yeah, the story focused on the sub=prime auto lending and how it's (arguably) not a big factor in the general economy.  BUt the stat on auto-loans isn't limited to subprime loans.  The story just quickly threw those figures out and I was like "wait, ...what?? it's that long??!"

Everyone, I know makes minimum payments on their cars as well. Like it's a rent check or something...

Chris22

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Re: Median car loan hits 68 months and $30k.
« Reply #6 on: September 08, 2016, 12:03:04 PM »
https://www.marketplace.org/2016/09/07/economy/car-loans

Yeah, the story focused on the sub=prime auto lending and how it's (arguably) not a big factor in the general economy.  BUt the stat on auto-loans isn't limited to subprime loans.  The story just quickly threw those figures out and I was like "wait, ...what?? it's that long??!"

Everyone, I know makes minimum payments on their cars as well. Like it's a rent check or something...

Given the generally low financing rates, why wouldn't you? 

joleran

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Re: Median car loan hits 68 months and $30k.
« Reply #7 on: September 08, 2016, 12:21:30 PM »
Given the generally low financing rates, why wouldn't you?

Yeah, I am in no hurry to pay off my 3-year loan for a used car at 1.99%

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Re: Median car loan hits 68 months and $30k.
« Reply #8 on: September 08, 2016, 01:17:36 PM »
But clearly not everyone gets rates that low. I've heard some whopper interest rates over the years.

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Re: Median car loan hits 68 months and $30k.
« Reply #9 on: September 08, 2016, 01:18:38 PM »
1.99%?  I'm getting gouged at 2.15% over 3 years!

gimp

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Re: Median car loan hits 68 months and $30k.
« Reply #10 on: September 08, 2016, 04:05:17 PM »
In all seriousness, guys -

Car loans are done in a similar way to mortgage loans, where usually the person selling the device on credit (car, house) doesn't carry the note - they get paid cash; the bank carries the note for a very short time - but then they sell it off to loan pools; loan pools rate the loans, package them up, assign them tranches, get them rated by a ratings agencies, and allow investors to buy parts of or entire pools.

Now, the big issue with houses was of course that "somehow" ten thousand subprime loans were rated A or AA when they should have been rated B at best, if not CC or effectively as junk bonds. (Not that there's anything wrong with investing in junk bonds - the returns are high - you just have to be very good at assessing risk, and ideally, can get better assessments than your competition. In other words, junk bonds are a game for investment firms with buckets of money.)

I have reached a dead end into trying to figure out who owns the car loan pools, and more specifically, 1) what they're rated like, and 2) what the individual loans look like.

I imagine, because I still have faith in humanity, that investors remember 2008 - it was just eight years ago - and are properly rating these 15+% loans as junk, and investing with full knowledge of the subprime quality of the pools. Better yet, I hope that the managers of the pools know how to contract with repo men and wholesale auctioneers, to quickly recover and flip any property in serious default.

But if not... well, this is going to be interesting!

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Re: Median car loan hits 68 months and $30k.
« Reply #11 on: September 09, 2016, 07:18:24 AM »
http://www.imdb.com/title/tt1596363/

What I took away from that movie was that some of these investor type people just didn't care what the consequences were as long as they were making buckets of money.  If they were rich enough then they could check out until the recession blew over, or they'd spend the recession buying up what other people lost due to bankruptcy.

If you have money - you can be like a cat - always landing on your paws.

Chris22

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Re: Median car loan hits 68 months and $30k.
« Reply #12 on: September 09, 2016, 07:24:03 AM »
In all seriousness, guys -

Car loans are done in a similar way to mortgage loans, where usually the person selling the device on credit (car, house) doesn't carry the note - they get paid cash; the bank carries the note for a very short time - but then they sell it off to loan pools; loan pools rate the loans, package them up, assign them tranches, get them rated by a ratings agencies, and allow investors to buy parts of or entire pools.

Now, the big issue with houses was of course that "somehow" ten thousand subprime loans were rated A or AA when they should have been rated B at best, if not CC or effectively as junk bonds. (Not that there's anything wrong with investing in junk bonds - the returns are high - you just have to be very good at assessing risk, and ideally, can get better assessments than your competition. In other words, junk bonds are a game for investment firms with buckets of money.)

I have reached a dead end into trying to figure out who owns the car loan pools, and more specifically, 1) what they're rated like, and 2) what the individual loans look like.

I imagine, because I still have faith in humanity, that investors remember 2008 - it was just eight years ago - and are properly rating these 15+% loans as junk, and investing with full knowledge of the subprime quality of the pools. Better yet, I hope that the managers of the pools know how to contract with repo men and wholesale auctioneers, to quickly recover and flip any property in serious default.

But if not... well, this is going to be interesting!

Main difference though is cars are MUCH more liquid than real estate, much more easily repossessed, and the absolute dollar amounts are a magnitude of order smaller. $5k upside down on a car is $50k on a house ($30k loan vs $300k) so the holes are much easier to climb out of.

Would I want to hold tranches of subprime car loans?  Obviously not, but the risk to the overall market is much less severe. A thunderstorm not a hurricane.

jinga nation

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Re: Median car loan hits 68 months and $30k.
« Reply #13 on: September 09, 2016, 07:31:40 AM »
In all seriousness, guys -

Car loans are done in a similar way to mortgage loans, where usually the person selling the device on credit (car, house) doesn't carry the note - they get paid cash; the bank carries the note for a very short time - but then they sell it off to loan pools; loan pools rate the loans, package them up, assign them tranches, get them rated by a ratings agencies, and allow investors to buy parts of or entire pools.

Now, the big issue with houses was of course that "somehow" ten thousand subprime loans were rated A or AA when they should have been rated B at best, if not CC or effectively as junk bonds. (Not that there's anything wrong with investing in junk bonds - the returns are high - you just have to be very good at assessing risk, and ideally, can get better assessments than your competition. In other words, junk bonds are a game for investment firms with buckets of money.)

I have reached a dead end into trying to figure out who owns the car loan pools, and more specifically, 1) what they're rated like, and 2) what the individual loans look like.

I imagine, because I still have faith in humanity, that investors remember 2008 - it was just eight years ago - and are properly rating these 15+% loans as junk, and investing with full knowledge of the subprime quality of the pools. Better yet, I hope that the managers of the pools know how to contract with repo men and wholesale auctioneers, to quickly recover and flip any property in serious default.

But if not... well, this is going to be interesting!

Main difference though is cars are MUCH more liquid than real estate, much more easily repossessed, and the absolute dollar amounts are a magnitude of order smaller. $5k upside down on a car is $50k on a house ($30k loan vs $300k) so the holes are much easier to climb out of.

Would I want to hold tranches of subprime car loans?  Obviously not, but the risk to the overall market is much less severe. A thunderstorm not a hurricane.
^ This.
Plus, human memory is fleeting, on a general scale. Rinse and repeat of 2008.

gimp

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Re: Median car loan hits 68 months and $30k.
« Reply #14 on: September 10, 2016, 12:05:08 AM »
The smaller dollar amounts don't matter. The loans are bundled. They matter to you and me, but when you want to buy $500m worth of notes, it's hard to care whether that's 10000 cars or 1000 houses as long as the risk is managed appropriately.

Repossession is, as I mentioned, a lot easier with a car. Still, unlike a house, a car can be hidden, its remote immobilizers can be disabled, etc. Also, cars get catastrophically destroyed far more often than do houses.

I'm not so interested in the structural risk to american credit in general - the total sum is high, sure, but capital requirements generally forbid banks from 20:1 leverage on car loan pools just as much as they forbid them from 20:1 leverage on mortgage pools. I just want to know if the ones that don't have such capital requirements (ie, the private banks, the not structurally important banks) are doing it; and also more broadly, how these loans are rated.

GuyinTexas

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Re: Median car loan hits 68 months and $30k.
« Reply #15 on: September 11, 2016, 09:03:36 AM »
This article sounds quite familiar. I took out a 60 month loan for $31k at 1.9% at the end of March. My first payment was due in May and I'm ~$28,640 now. In about 3 months that will be my only debt since I rent and my $47k student loan will be paid off. Payment is $541/mo. Not Mustachian but I'd rather have a moderately fancy car over an expensive home that will go unused as a single man with family 1500 miles away.

Nederstash

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Re: Median car loan hits 68 months and $30k.
« Reply #16 on: September 11, 2016, 11:08:56 AM »
This article sounds quite familiar. I took out a 60 month loan for $31k at 1.9% at the end of March. My first payment was due in May and I'm ~$28,640 now. In about 3 months that will be my only debt since I rent and my $47k student loan will be paid off. Payment is $541/mo. Not Mustachian but I'd rather have a moderately fancy car over an expensive home that will go unused as a single man with family 1500 miles away.

It scares me that you seem to think a car and a house are the only two options for your money...

SeaEhm

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Re: Median car loan hits 68 months and $30k.
« Reply #17 on: September 11, 2016, 11:20:43 AM »
This article sounds quite familiar. I took out a 60 month loan for $31k at 1.9% at the end of March. My first payment was due in May and I'm ~$28,640 now. In about 3 months that will be my only debt since I rent and my $47k student loan will be paid off. Payment is $541/mo. Not Mustachian but I'd rather have a moderately fancy car over an expensive home that will go unused as a single man with family 1500 miles away.

It scares me that you seem to think a car and a house are the only two options for your money...

it scares me that one assumes others aren't maxing out 401ks and other retirement avenues

Abe

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Re: Median car loan hits 68 months and $30k.
« Reply #18 on: September 11, 2016, 04:16:11 PM »
nothing wrong with extending the loan out if its really low interest (I have one for $20k, 1.5% interest). But $30k is the average? All of the mid-size sedans or SUVs can be bought for significantly less. That suggests more than half of people are buying luxury cars now?

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Re: Median car loan hits 68 months and $30k.
« Reply #19 on: September 11, 2016, 04:31:31 PM »
Given the generally low financing rates, why wouldn't you?

Yeah, I am in no hurry to pay off my 3-year loan for a used car at 1.99%

Sure, this approach may work for you, but personally, I would never ever get a car loan, even if the interest rates are super low because I will be paying full insurance. I will forever own a real cheap (but reliable) car that I paid cash for, and only pay for liability insurance.

Cyaphas

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Re: Median car loan hits 68 months and $30k.
« Reply #20 on: September 11, 2016, 04:47:01 PM »
Given the generally low financing rates, why wouldn't you?

Yeah, I am in no hurry to pay off my 3-year loan for a used car at 1.99%

Sure, this approach may work for you, but personally, I would never ever get a car loan, even if the interest rates are super low because I will be paying full insurance. I will forever own a real cheap (but reliable) car that I paid cash for, and only pay for liability insurance.

I'm considering applying this tactic to housing/rentals too. The vast majority of people don't realize how much money they have and will burn to the Insurance gods.

GreenEggs

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Re: Median car loan hits 68 months and $30k.
« Reply #21 on: September 11, 2016, 04:58:30 PM »
Nobody's mentioned that most homes appreciate & most cars depreciate. 

My kids can inherit the home in 20+ years and the car will likely be headed to the scrap yard by then.   

Cyaphas

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Re: Median car loan hits 68 months and $30k.
« Reply #22 on: September 11, 2016, 05:18:34 PM »
Nobody's mentioned that most homes appreciate & most cars depreciate. 

My kids can inherit the home in 20+ years and the car will likely be headed to the scrap yard by then.

Not if you bought a classic car. For how little driving is encouraged around here, owning a classic for what some people pay for new should be a much mroe preached alternative.

GreenEggs

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Re: Median car loan hits 68 months and $30k.
« Reply #23 on: September 11, 2016, 05:41:35 PM »
Nobody's mentioned that most homes appreciate & most cars depreciate. 

My kids can inherit the home in 20+ years and the car will likely be headed to the scrap yard by then.

Not if you bought a classic car. For how little driving is encouraged around here, owning a classic for what some people pay for new should be a much mroe preached alternative.

I sure wish I'd kept the 67' Corvette I had in the late 80's.  I only had it 3 or 4 years, but sold it for about 50% more than I'd paid for it.  It's hard to believe so many people are willing to spend $100K+ for new sports cars, knowing that they'll drop in value to 1/2 that in a couple of years.  The same people have financial planners, stock brokers, accountants, etc. to help them with their money, but they'll dump their $$$$ into the depreciation hole for toys?! 

My best friend from college has a rich wife that loves her toys.  She bought a new ski boat last year for $140K and just ordered a new ski boat because she "didn't really like" the one she bought less than a year ago!  I don't think she'd learn much here.  ;)

Chris22

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Re: Median car loan hits 68 months and $30k.
« Reply #24 on: September 11, 2016, 07:57:30 PM »
Given the generally low financing rates, why wouldn't you?

Yeah, I am in no hurry to pay off my 3-year loan for a used car at 1.99%

Sure, this approach may work for you, but personally, I would never ever get a car loan, even if the interest rates are super low because I will be paying full insurance. I will forever own a real cheap (but reliable) car that I paid cash for, and only pay for liability insurance.

I will never understand why so many MMMers spend so much time bitching and moanin about insurance. My cars, with lots and lots of coverage, average $50/car/month. So figure you can cut that in half by going bare-bones, no collision/comprehensive, etc. you've saved $300 a year. Is that really a big deal?  It certainly seems like a silly amount of money to guide your entire car buying decision process.

SeaEhm

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Re: Median car loan hits 68 months and $30k.
« Reply #25 on: September 11, 2016, 10:20:46 PM »
Given the generally low financing rates, why wouldn't you?

Yeah, I am in no hurry to pay off my 3-year loan for a used car at 1.99%

Sure, this approach may work for you, but personally, I would never ever get a car loan, even if the interest rates are super low because I will be paying full insurance. I will forever own a real cheap (but reliable) car that I paid cash for, and only pay for liability insurance.

I will never understand why so many MMMers spend so much time bitching and moanin about insurance. My cars, with lots and lots of coverage, average $50/car/month. So figure you can cut that in half by going bare-bones, no collision/comprehensive, etc. you've saved $300 a year. Is that really a big deal?  It certainly seems like a silly amount of money to guide your entire car buying decision process.


Insurance is funny -

All this talk about insurance.  I have a 16 year old economy car (Honda/Acura) that I drive less than 3,000 miles a year.  The insurance knows this and the comprehensive part of the insurance is still more than a brand new luxury car that is driven 13,000 miles per year.   

Also, as someone mentioned most people are not getting top tier rates.  Outside of the internet, people all don't have 830 credit scores.  Therefore, they end up getting 8+%.  I heard stories of people within the last 8 years getting nearly 20% loans!   HOLY MOLY!  I do not think I would be game for a luxury car if I had to finance at that rate.  2%?  Not too shabby.  Mortgage <5%? No big deal personally.

Making Cookies

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Re: Median car loan hits 68 months and $30k.
« Reply #26 on: September 12, 2016, 08:55:34 AM »
Are you running comprehensive insurance on a 16 year old daily driver grade car?

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Re: Median car loan hits 68 months and $30k.
« Reply #27 on: September 12, 2016, 10:22:52 AM »
I will never understand why so many MMMers spend so much time bitching and moanin about insurance. My cars, with lots and lots of coverage, average $50/car/month. So figure you can cut that in half by going bare-bones, no collision/comprehensive, etc. you've saved $300 a year. Is that really a big deal?  It certainly seems like a silly amount of money to guide your entire car buying decision process.

For those that live in areas with higher auto insurance rates, that barebones strategy can be as financially rewarding as ditching cable TV. If I could get "lots and lots of coverage" for $50/month here in Texas I would be all over it. . . .

joleran

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Re: Median car loan hits 68 months and $30k.
« Reply #28 on: September 12, 2016, 01:51:16 PM »
If I could get "lots and lots of coverage" for $50/month here in Texas I would be all over it. . . .

Hmm, Allstate is giving me $50/mo for full comprehensive/collision/liability on a 2014 mid-size sedan in the Chicago region.  I did have to ask to get my deductibles and liability coverage up though.

astvilla

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Re: Median car loan hits 68 months and $30k.
« Reply #29 on: September 12, 2016, 07:36:02 PM »
Anyone know the % of car purchases that are financed by loans?  I can't find a statistic and I don't know many people, let alone use auto loans.  My family has always been cash and drive it into the ground.

The only thing I've heard is Dave Ramsey saying 84% of car purchases are done with loans.

Auto loans are stupid, paying more for a depreciating asset, even home mortgages are going to be better.

MayDay

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Re: Median car loan hits 68 months and $30k.
« Reply #30 on: September 13, 2016, 06:59:25 AM »
This perfectly describes my SIL. New car, a POS dodge suv, when she had a kid, because she needed a big car for the baby!

Car is 5 years old now. Has had various mechanical problems already, plus regular stuff like tires. Plus she smokes in it and has a long commute, so basically the car is worthless.

It was a 6 year loan. She's paid a bit extra, but not enough. She has crap credit so I can only imagine her interest rate.

By the time it's paid off next year, I will be shocked if it doesn't die or need major rep within a year, and she'll be back in another loan.

The kicker: her too small for a baby car was a Toyota corolla, paid off, never had a mechanical problem. Some people never learn.
« Last Edit: September 13, 2016, 02:47:45 PM by MayDay »

MgoSam

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Re: Median car loan hits 68 months and $30k.
« Reply #31 on: September 13, 2016, 01:04:37 PM »
Anyone know the % of car purchases that are financed by loans?  I can't find a statistic and I don't know many people, let alone use auto loans.  My family has always been cash and drive it into the ground.

The only thing I've heard is Dave Ramsey saying 84% of car purchases are done with loans.

Auto loans are stupid, paying more for a depreciating asset, even home mortgages are going to be better.

About 11% of car sales are cash. I don't know if this means that 89% are on credit or not.

http://www.nytimes.com/2007/07/28/business/yourmoney/28money.html?_r=0

nereo

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Re: Median car loan hits 68 months and $30k.
« Reply #32 on: September 13, 2016, 01:23:39 PM »
Anyone know the % of car purchases that are financed by loans?  I can't find a statistic and I don't know many people, let alone use auto loans.  My family has always been cash and drive it into the ground.

The only thing I've heard is Dave Ramsey saying 84% of car purchases are done with loans.

Auto loans are stupid, paying more for a depreciating asset, even home mortgages are going to be better.

About 11% of car sales are cash. I don't know if this means that 89% are on credit or not.

http://www.nytimes.com/2007/07/28/business/yourmoney/28money.html?_r=0

well, at least one has been paid for with a pizza...  Thanks Spork!

MgoSam

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Re: Median car loan hits 68 months and $30k.
« Reply #33 on: September 13, 2016, 01:44:56 PM »
Anyone know the % of car purchases that are financed by loans?  I can't find a statistic and I don't know many people, let alone use auto loans.  My family has always been cash and drive it into the ground.

The only thing I've heard is Dave Ramsey saying 84% of car purchases are done with loans.

Auto loans are stupid, paying more for a depreciating asset, even home mortgages are going to be better.

About 11% of car sales are cash. I don't know if this means that 89% are on credit or not.

http://www.nytimes.com/2007/07/28/business/yourmoney/28money.html?_r=0

well, at least one has been paid for with a pizza...  Thanks Spork!

LOL!

My favorite has to be this Chinese women that bought a 1M yuan car with a bunch of 1 yuan notes. Took 6 employees hours to count it, and it essentially was about a tenth of the total price, so she just paid the difference by credit card.

http://www.scmp.com/news/china/society/article/1772697/chinese-woman-stuns-dealership-heavyweight-payment-new-car