Good Lord, 97 month car loans introduced

[tvguy]

A generation ago 10 year home lons was not the norm. In the 20s, loans were 20 years.

As for the 8 year car loans, that is just silly.

Google it. 15 year mortgages weren't common until the mid-1930's, then 20.year after WWII, and 30 year in the late 1950s.

DW and my parents were of the mind set if you couldn't pay cash for a house, you either needed to save more money, or buy a smaller house. We were the first generation to even have a mortgage.

Of course, here in SAcramento one third of all home sales in 2012 were cash....and I have a friend in Pennsylvannia who is a realtor and she says half her home sales these days are cash.

 

[ironpig70]

Its the way to get people into something they cannot afford. Just like a 50 year home loan.

 

[preschoolmom]

It's not necessarily a bad thing. We financed both our last cars on five year loans (gasp - the horror!). One was a minivan, which we needed as we were driving our beater cars from before we got married, and we had three kids in 13 months. We were newly living on one income - so we got the minivan with a payment we could afford. We paid it off in 4 years.

We bought my husband's commuter car on a five year loan, and paid it off in 3 years. The longer term just helped us to have lower payments...

Who wants to put all their money on an expensive 3 year car loan - when they are saving for college, retirement, and Disney at the same time?

We are still driving that minivan (10 years old now), so 6 years with no payments. I don't think it was a bad choice for us.

 

[preschoolmom]

I wasn't able to open the link either but I had a 7 year car loan for my first car i bought with an interest rate somewhere around 9%. It was a $13k car.

I was just barely 18 and had no credit. My used car was so old and had lasted for so long that it was on its last legs and was smoking when it was turned on. I took the 7 year loan with 9% interest because they were the payments I could afford at 18 with no credit. I couldn't even get financing for a used car at that point.

Once I was no longer "Upside down" which was about 5 years, I traded it in. The trade in value was about 2grand more than I owed. So if covered that loan and provided a 2 grand down payment on the next car. That's loan was then 7% now with credit history, it was a 6 year loan and payments were toughly the same.

I traded that one in at about 4 years, again traded it in and got about 2 grand over what was left.

I'm now on a new 5 year car loan, 2% interest. Payments are $100 more monthly than the last one, but I have a more reliable car, and moved from a sub compact to a compact. Great warranties and had mileage. This car should be paid off at the 3 year mark. And I plan on keeping it for as long as it will run at that point.


I can 100% see how someone would need a 8 year car loan to start off. Unfortunately some people wouldn't be smart about it and pay it off early, or make the car last. But there is a definite reason someone would find it appealing.

Very well said. This is what I was trying to say, but you explained it much better!

 

[suprgrlx]

I have looked up a calculator and the following is based on 5.0% with the amount of the loan as $25,000.

Column 1 is the number of months. Column 2 is the monthly payment (rounded to nearest dollar). Column 3 is the total interest paid over the life of the loan.

36 $599 $1,579
48 $461 $2,108
60 $377 $2,645
72 $322 $3,191
97 $251 $4,354

And for a 97 month loan, it will be after payment #53 that half of the principal is paid.

One problem with this comparison is that it assumes that you're paying 5% interest on all of these loans. I checked now, and on the Hyundai Canada website, I can get 0% up to 84 months (last summer I could get 0% on some 96 month loans too).

http://www.hyundaicanada.com/

So obviously, that's going to make a big difference. I put in a $19,000 loan at 1% and even that was about $650 in interest over 84 months. That may well be worth it to someone to have the better payments now.

Wow, the payments aside (because auto loan rates are generally pretty low), I can't imagine being locked in to carrying lender-required levels of insurance on a 7 or 8 year old car. Around here, full coverage can easily run $4000/yr (clean driving record, average credit rating... the latter makes more difference than the former barring major violations like DUI). Over 8 years, the insurance premiums alone would exceed the purchase price of an average car!

Again, different areas make a big difference. We currently pay about $110/month for insurance on our 2010. And that premium will replace our car with a brand new (new model year) machine, same as we have now, if it gets totalled. When we were driving our 2005 still, our insurance was cheaper (about $96/month, but without this replacement perk), so I don't think it will get as bad as $4000/year in the next three or four years.

Overall, I would not want to be locked into a loan for that long. However, if I'm paying 0-1% interest, frankly I'd be tempted to pay off that loan over as long a time as possible since my money is more valuable to me in my hands in this case than in the lender's. For example, even if I had 100% of the cash, I'd be better off putting it in a 2% savings account and then making the payments out of that!

 

[Mickey & Minnie Mom]

Overall, I would not want to be locked into a loan for that long. However, if I'm paying 0-1% interest, frankly I'd be tempted to pay off that loan over as long a time as possible since my money is more valuable to me in my hands in this case than in the lender's. For example, even if I had 100% of the cash, I'd be better off putting it in a 2% savings account and then making the payments out of that!

And if a savings account earning 2% were available, that would be a great idea.

Unfortunately, haven't seen that is a long time.

We had financed my car for 3 years just like you said, no or low interest rate and had the cash in a savings account. After about a year, the saving rate had lowered so much we just decided to go ahead and pay it off before the savings rate was less than the interest rate on the loan.

Saving is great but it sure isn't earning 2% these days!

 

[Colleen27]

Again, different areas make a big difference. We currently pay about $110/month for insurance on our 2010. And that premium will replace our car with a brand new (new model year) machine, same as we have now, if it gets totalled. When we were driving our 2005 still, our insurance was cheaper (about $96/month, but without this replacement perk), so I don't think it will get as bad as $4000/year in the next three or four years.

So jealous. I'm paying that for bare minimum liability coverage on my 2003 Venture minivan. No collision, no comprehensive, no theft. Just what I need to meet the legal requirements to register and plate the vehicle. And that's with two spotless driving records. I don't even want to think about what it will be when my 15yo starts driving.

 

[angierae]

So jealous. I'm paying that for bare minimum liability coverage on my 2003 Venture minivan. No collision, no comprehensive, no theft. Just what I need to meet the legal requirements to register and plate the vehicle. And that's with two spotless driving records. I don't even want to think about what it will be when my 15yo starts driving.

Amazing how much rates can differ in different parts of the same state. I'm paying $90 a month (and it'd be about $5 cheaper if I paid every six months, but the convenience of paying monthly is worth the $5/month) for full coverage on my 2008 Cobalt.

 

[snarlingcoyote]

I expect 10 years out of a car with no repairs, so far, that has been a pretty good assumption. Do all the fluid changes the owners manual says to do when it says to do them, a car will last a long time. After 10 years I just plan on spending what would add up to one months car payment a year in repairs.

I bought my family car new in 1987, and it is still my family car almost 26 years later.

And my last car died at 7 years, despite being babied and pampered, and would've cost me 4K to fix. It wasn't in my plans to buy another car for another 5 or 6 years, but that's how life works sometimes.

 

[suprgrlx]

And if a savings account earning 2% were available, that would be a great idea.

Unfortunately, haven't seen that is a long time.

We had financed my car for 3 years just like you said, no or low interest rate and had the cash in a savings account. After about a year, the saving rate had lowered so much we just decided to go ahead and pay it off before the savings rate was less than the interest rate on the loan.

Saving is great but it sure isn't earning 2% these days!

Well, I guess again I'm talking about my own experience here. I know recently I got an email from one of my banks talking about getting 2.5% interest. Let me find it...

http://www.ingdirect.ca/en/save-invest/savingsaccounts/index.html

Ah, that was apparently on new deposits for a limited time. However, even if I did just use the regular savings account rate (or even better, GICs), it's worth it for 0-1% car financing rates:

Current Interest Rate (Savings)
1.35%

Current Interest Rates (GIC)
1 Year 1.35%
1 ½ Year 1.75%
2 Year 1.75%
3 Year 2.00%
4 Year 2.00%
5 Year 2.25%

I will totally be the first to admit though that I don't know as much about the interest rates in the States (whether for savings accounts or car financing), just trying to point out that it might not be ridiculous to take that long loan.

 

[goofyfigment]

Amazing how much rates can differ in different parts of the same state. I'm paying $90 a month (and it'd be about $5 cheaper if I paid every six months, but the convenience of paying monthly is worth the $5/month) for full coverage on my 2008 Cobalt.

I pay 140 a month for full coverage on a 05 cavalier and a 09 Pontiac g6 gt. I can't imagine paying the 4k the PP stated.

 

[MrsPete]

Anyone who grasps the concept of compound interest knows that this is a monumental mistake. It's a way for people to buy a car they can't afford. Given that a car is a depreciating asset, it's a foolish choice.

Those who say it'll allow those in need to purchase a car to get to work. You're kind -- but misguided. A person in that situation would be much better off buying a less-expensive used car. If indeed this option is pressed upon "the working poor", then the dealership is taking advantage of them.

 

[mikehn]

Cool! Im going to the Maserati dealership later. Im not worried about defaulting on my 97 month loan because Im sure you good people will bail me out.

 

[tvguy]

And my last car died at 7 years, despite being babied and pampered, and would've cost me 4K to fix. It wasn't in my plans to buy another car for another 5 or 6 years, but that's how life works sometimes.

Yeah, but at least in California $4,000 would be the sales tax and registration on a new car, no brainer fix the car.

 

[DisneyCowgirl]

All the financial "gurus" say to never have a car loan. It's bad debt since you will never, ever recoup what you paid for the car.

Of course you won't recoup what you paid for the car. A car is an expense (and in many cities a necessary one), not an investment.

 

[sunshinehighway]

Google it. 15 year mortgages weren't common until the mid-1930's, then 20.year after WWII, and 30 year in the late 1950s.

DW and my parents were of the mind set if you couldn't pay cash for a house, you either needed to save more money, or buy a smaller house. We were the first generation to even have a mortgage.

Of course, here in SAcramento one third of all home sales in 2012 were cash....and I have a friend in Pennsylvannia who is a realtor and she says half her home sales these days are cash.

Most people are not in a position to pay cash for a house.
My grandmother wasn't even born until the mid 1930s so I don't really understand how you can use the 30s as an example of a generation ago.
Buying on credit was very popular during the 1920s and helped create the Great Depression.

While driving a 30 year old car with ripped seats works for you, it doesn't for everyone. Its not that hard to understand.

I drive an older car and I fully expect to pay more than a one month car payment on repairs. I can't even buy new tires for less that a single months car payment. Even without a major repair, cars just need things replaced at certain times.

 

[tvguy]

Most people are not in a position to pay cash for a house.
My grandmother wasn't even born until the mid 1930s so I don't really understand how you can use the 30s as an example of a generation ago.
Buying on credit was very popular during the 1920s and helped create the Great Depression.

While driving a 30 year old car with ripped seats works for you, it doesn't for everyone. Its not that hard to understand.

I drive an older car and I fully expect to pay more than a one month car payment on repairs. I can't even buy new tires for less that a single months car payment. Even without a major repair, cars just need things replaced at certain times.

Age is all relative. My dad was born in 1910, my mom in 1923. So maybe 2 generations might be more agreeable?
Everyone has their own priorities on cars. If lowest cost per mile is the goal, repairing a car is almost always going to be cheaper (not counting collision damage, or extensive rust, although these days rust is easy to control)
Of course, like I posted, given how many people are paying cash for homes now, with mortgages at historic lows, it's pretty amazing.

 

[kellia]

So jealous. I'm paying that for bare minimum liability coverage on my 2003 Venture minivan. No collision, no comprehensive, no theft. Just what I need to meet the legal requirements to register and plate the vehicle. And that's with two spotless driving records. I don't even want to think about what it will be when my 15yo starts driving.

My goodness, who do you go through?! I'm guessing we live in the same area. We have a 2008 Grand Caravan full coverage, 2003 Grand Prix plpd (my car, too many miles worth full coverage!), and dd(16) is on a 2003 Lesabre with plpd. Through AAA it is $250/mo x 11 months/year. Have you shopped around recently? PLPD for dd when she started driving was "only" $1200/year.

 

[sunshinehighway]

So jealous. I'm paying that for bare minimum liability coverage on my 2003 Venture minivan. No collision, no comprehensive, no theft. Just what I need to meet the legal requirements to register and plate the vehicle. And that's with two spotless driving records. I don't even want to think about what it will be when my 15yo starts driving.

Isn't it amazing how different rates can be? I have the bare minimum on my 12 year old car and pay $40ish per month.

 

[JakeJenna]

Isn't it amazing how different rates can be? I have the bare minimum on my 12 year old car and pay $40ish per month.

It's Michigan, I was telling my insurance agent we were moving to Toledo and my wife was from Michigan. Her exact words were "never move over the line your rates will quadruple." Something about how much medical you have to carry.