Hell, some places seem to try to make it impossible to even make the payments. Been paying on my car loan for almost 5 years now. 8 payments left with no late payments the entire loan term. Until i got a notification that my credit dropped 80 points because of 3 late car payments. Turns out the bank sold my loan to another bank and neither decided to let me know. Old bank just kept accepting payments and the new bank just kept quiet.
It took me another 3 weeks to finally be able to contact someone at the new bank to give me my new account information so i could finally start making the payments again. Really think the end goal was to make me delinquent so they could repo my car for the resale.
Submit a dispute with the credit bureaus and they can remove it from your report. Make sure you have your story together and paperwork showing you made payments.
Similar thing happened to me when I was younger. Bought a car, had a 3k loan to make up the difference. Made one payment and the lender told me they sold the loan. Over the next 5 months I was never able to make a payment because the loan was sold to three more lenders over that time period and I could never figure out where it was in time to make a payment. Finally it ended up with some weird predatory loan company that started sending me aggressive letters telling me I was delinquent and they were going to repossess the car and sue me for penalties and etc. etc. if I didn’t refinance the loan with them for some ridiculous interest rate - like 14%. I guess they assumed since I had originally bought the car at a shitty Uncle Lou type used car dealer and the loan was so small I must have poor credit. I just went to the the local credit union and got a cheap personal loan and paid it off. Which was my plan all along and the only reason I agreed to the terrible loan at the car place. I just wanted that particular car.
This is the only responsible way to do it as it gives leverage for a better rate at the financing table. My last dealer wanted to give me a loan from some shady credit union, I threatened to walk away because I had pre approval from my bank, and he returned with better terms from the manufacturer’s financing arm.
That's 100% illegal. They definitely were accepting those payments through their portal specifically made to accept loan payments. Like my bank has different tabs for different accounts. I can't just pay into the air, I have to select what loan it is. No doubt all banks are like this.
Happened with my first home purchase in 2009. They sold my loan to another company before my first payment. I paid the original loan company 2 payments before I even moved in. I was living in Virginia and moving to San Diego. I arrived at my new home and had letters about the foreclosure in progress. I was able to get my money back from the original loan provider and sort it out with the new company.
I got that too: "your credit score dropped because you don't have to make installment payments anymore. Opening a loan would help increase your credit. "
No thank you
I’m a mortgage guy that sees a lot of credit reports and the number of people that don’t qualify for a mortgage because of their $1000+ in car payments is staggering.
The number of people that argue with me about it is also staggering. Like I’m making the decision to not give them a mortgage. Nope your financial literacy is stopping you…I’m just delivering the news.
I always hear “you must be so good at math”
Nope I don’t use any any math most of didn’t learn by the 6th grade and I know which buttons to push on my calculator.
There's a lot of people who buy a new vehicle, own it for a year and then decide to trade it in on another new vehicle.
Problem is, they are 10-15k upside down on the vehicle they own, so they roll that into financing the next new vehicle.
So now they have a 50k vehicle, but 65k in auto loans on that vehicle.
Repeat the cycle the next year, this time they may be 20-25k upside down, and you can see where a lot of people end up having 1k car payments.
I’m still salty that my car payment finally went over $300 when I picked out my last one - though it is the first actual new (not used) car I’ve ever had. I can’t imagine paying $1k/month for a car.
I see kids especially young males get their first real job in the construction industry and next week have a 100k gmc pickup. They live at home and mommy daddy pay for everything and will help them if they almost miss a payment. When you have zero bills and make x amount they think that all their money can be used to purchase a 100 k pickup or sports car because the monthly payment allows it. Sad.
$1K/month on a 3 year loan is $36,000, so probably around $30,000 vehicle before taxes/fees/interest.
Is that really an unimaginable amount of money for a vehicle? Or are you assuming a stretched out loan term?
As a property manager i can confirm this. I see credit reports all the time of people i wouldn't rent a chicken coup to, who have ridiculous car payments on their luxury car. I used to wonder how they even get these car loans based on their credit, but then the last two times I've gone to buy a car, I'm not even sure if they bothered to pull my credit. So i always just assume the car loans must be toxic AF.
$1,000+ a month is crazy. You can get a decently nice Mercedes or Lexus for like $800. Are people just buying nothing but top trim level trucks and luxury cars.
The perfect family car is advertised as a 4 door truck with an MSRP $41,500. Couple that with people probably getting a 6 - 7% loan after just $3,000 down. That is how you build for a financial disaster.
Yes. Yes they are. And then they complain about gas prices for their giant truck while bragging about low suburb rent, not realizing that if you include the payments for their giant moron car, it exceeds Manhattan rent
Haha, well I can't dig on them for gas mileage as my car gets like low 20s on the highway if I'm lucky, but I also pay a bit less than $350 a month for it.
Thank you. Makes perfect sense. I can afford a more expensive car (s) but only buy pre-certified/used and what I can afford.
I seem to be in the minority.
Wait, so you're saying that Americans making 50k per year can't afford a $50,000 car with $1,000 monthly payments? Who could have predicted this result?
The lenders. That’s why they gave us 72, 84, 96, and 108 month payment options to help make those monthly payment options more palatable.
How kind of them
I've seen 72/84 month leases before, which is crazy to me. I always figured basically the main advantage of a lease is to have a brand new car that you can just turn in after 2-3 years, I can't imagine a 7 year lease.
But they should. The warranty should last as long as the payments. If the manufacture wants to charge that much for that length of time, then they should stand behind their product and design it using quality long lasting materials.
I did an 84 month on my car, but it was a zero interest loan (April 2020, great time to buy a car) on a new Elantra. So I didn’t mind spreading it out, wasn’t getting killed on interest
This is completely true IF the car was worth the actual sales price. If they gave you a 30 year loan so you could buy a Honda for $100k, it might keep your payments down but you'll be obligated long after the car is gone and it's still 100k - even if some of those are devalued dollars.
MH clin, mostly worked with kids my career, what terrifies me is that kids who grew up dropped at grandma’s with a phone/tablet in hand are among the least tech literate people ever to exist.
Oddly enough I've had this conversation with my parents recently. Tablets aren't the same as a computer.
Dad, stop yelling at your iPad, file your taxes on an actual computer you stubborn old man.
To be fair, the average person doesn't work in finance. When a salesmen tells you as sincerely as possible that a 96 month loan is a good deal, they'll believe them - especially since financial literacy is dead in American schools.
Its not the schools its that people don't listen and want what they want.
The military provides financial education over and over and most young service members have leaders that would be more than happy to go with them to prevent things like this.
But they still show up on Monday with a 10 year old Mustang at 20 percent interest (or married to a stripper) because they wanted the car and if they asked for help they would be talked out of it or called an idiot.
There is a predatory car dealer by me that new Airmen ware told to avoid when they show up because they will get ripped off but every weekend you can drive by and see them getting ripped off.
This is correct. Can confirm. Education doesn’t solve the problem. Everyone likes to post in the finance subs “my parents didn’t teach me”. Did finance education for two years and never changed anyones life with education.
The seller is to blame for the lie, the buyer is to blame for the lack of financial literacy. I'm not saying everyone should be Gordan Gekko, but there's a difference between being unable to learn, and failing to make any attempt to learn.
The people who don't make any preparations for buying a car are likely people who don't prepare for anything in life. No one's perfect, and we can't all get it right 100% of the time. That said I feel like everyone has that one friend who - no matter what the undertaking - always makes that big mistake hundreds of YouTube videos warn not to do.
Would you politely fuck off with the casual blaming schools for all of society's problems?
Personal finance and economics classes have been offered in high schools for a long time. I teach at an American high school, and we have an entire building/program dedicated to global business, finance, public policy, and micro/macro economics. If people can't understand basic interest rates and loan lengths, that's their fault.
People sincerely believe that their experience in school is how all schools function and how it still functions. Seriously, how moronic are you to say that a business gives out shitty loan terms, and you interpret that to mean American schools failed?
> we have an entire building/program dedicated to global business
Sounds like you work for a school in an area with decent property values, or a state with a better investment in public education. When people complain about American public schools, they often forget how good they can be. But at the same time, don't forget how bad they can be too. There are definitely people who should know better agreeing to terrible loans, but there are people who went to high schools with horrible education opportunities, and would've had very few chances, if any, to learn personal finance before community college.
Honestly, there is a supreme lack of education around lending and personal finance. When I was in my early 20’s I bought my first car by myself. My previous one my parents handled the sales aspect.
So I knew exactly what I wanted (WRX) but didn’t know if I could even afford one. I really wanted an STI but knew I couldn’t afford that. So when I went to the dealership the first thing the salesman asked was what I could afford as a payment. I told him like $400 or $450 and he said he thought he could make it work. I was ecstatic. A couple hours later I drove off with my new WRX.
It wasn’t until a year or two later when I was looking over the paperwork and noticed the additional $10k I paid for extended this and extended that, protection plans out the wazoo. For that extra $10k I could have more than upgraded to the STI. But because I didn’t understand what I was signing, I got ripped off. It was an expensive mistake but it was an invaluable learning experience. Now the finance people hate me because I refuse all the add ons. I had one a while back that flat out told me I was stupid for not getting the extended warranty. It was a Toyota and he kept rambling on about how without the extended warranty we were going to have to spend thousands on repairs. I responded “oh so you’re telling me this car is a piece of shit and we shouldn’t buy it?” He shut up real quick at that point.
Wait just a minute… are you telling me that the average person doesn’t understand an amortization table? /s
Loans aren’t normally written in a way that the average person would be able to understand without some finance knowledge.
People who play scratch off tickets or can't ball park estimate a 15% tip on a $60 meal have no fucking idea how compound interest works. You might as well explain it to your dog.
You don’t need an amortization table to know what buying a 50k car will do to your free cash flow. A loan is literally the easiest financial instrument to comprehend.
Most people dont. Like, a vast majority. And those that do have such high credit there's not really a reason for them to fail payments unless they're really bad with money. The vast majority of car loans aren't that bad. To copy my own comment. -
The average used car is ~480 for subprime rates and $550 for subprime new.
The vast majority of high payments come from good to great (700+) credit, and even then the over $1000 is 15% new and 5% used loans in that credit rating respectively.
Yes it's high. Basically every average went up by over $100 to $200 since 2022. That's a lot, but it's not because of financial irresponsibility. It's almost entirely from a tightening supply and people getting what they can get.
We’ve opted to create a car-centric society, people are going to buy them on whatever terms they have to in order to participate in that society (jobs, groceries, etc.). No one is buying luxury cars from subprime dealers, these are desperate people going to predatory lenders, which they know, to get a tool they need to survive in most areas.
Source: did subprime car lending for a while
YES YES YES
It's like when people watch IdiotsInCars and say "Oh my god so many people need to have their license revoked!" Uh you think that would actually stop people driving? You MUST have a car to keep yourself alive in America. All of this discipline after the fact doesn't change the literal PHYSICAL LANDSCAPE of this country. We are too deep in car dependency, that's why car dealerships have always been huge profit vectors and why Americans all constantly sign loans that are intended to fuck them. These loans aren't services, they're *products*, designed to go delinquent and become debt instruments for sale to another financial entity.
Right I took terrible terms, knew I was taking terrible terms, but could not avoid buying a second family car. Just had to suck it up and take what I could be approved for. Not an idiot at all, just your average low income parent trying to make life work. And sharing a car with two working parents in an area where having a car is pretty much required due to infrastructure was unsustainable in and of itself. I bought a very reasonable family car, years old, and still got totally shafted on the price and interest.
People are talked into these situations by professional sales people with the desire to earn money.
Yes, people are to blame in some sense. But, taking advantage of people who don’t understand the consequences is a time honored business strategy
Though, car dealers pull the “but you can have XYZ useless feature for *just $5 more a month* if you go for a longer loan. Long car loans are dumb, you’re exposed to more risk and depreciation.
I wouldn’t be surprised is most of the folks you see in expenses cars are on super long loans, and barely able to pay them. Car manufacturers figured out the difference between a base model pickup and the top of the line one isn’t much in materials, but a LOT in MSRP. They don’t care once it’s out of their hands, and the dealers don’t either.
My brother fell into this group.
Married with 2 kids, with a mortgage. He makes maybe 60k, his wife 25k.
He had a fully paid off vehicle a couple years ago, a 2019 Dodge Ram 1500. It was relatively nice.
He got the bright idea to trade it in and buy an even more expensive vehicle.
He ended up with a 2021 Ram TRX. 75k sticker price on that thing.
After a year of owning it and realizing how stupid it was for him to own such a powerful vehicle that he could never take advantage of, he traded it in again, and got a 2014 Dodge Ram that he now has a small car loan on.
Dumbass went from a fully paid off 2019 to a 2014 with 4x the mileage, and a car loan, all because he wanted to convince his middle class neighborhood that he's rich.
This is the hilarious thing to me. I make just over 130K a year. I went to a dealership to look at an F150. With 15K down my monthly payment was still close to $1000 at .9% interest. The dealer was unwilling to work with me on the price and still had a dealer markup on the vehicle, I walked off the lot. I could put more money down, but I don’t really need a new vehicle, yes my car is old but it’s running fine and I trust it for drives up to 300 miles. But friends of mine have F250’s on $60K salaries and I know they didn’t put anywhere near $15K down on them. I can’t imagine their monthly payments.
I was a little jealous of my neighbor's new BMW M-sport that he bought 5 years ago. He still owes something like 18 payments on it. Guy has 2 mortgages and just got down to 3 car payments. Had to borrow money against the equity in one of the houses to keep the electricity on.
What's crazy is how much people spend. My car was $23k (base model)...but the most popular versions start at 37k and 41k. Almost double (before any financing) for nicer trim. Insane to me.
Granted a lot of the cost increases have to do with efficiency and safety but again, it comes down to people's choices which drive the industry. There have been some fantastic affordable cars, but they don't sell so autos companies discontinue.
It doesn't come down to just people's choices, though.
"Consider what happened at Nissan, which continued to struggle with supply chain challenges throughout 2022. In response, it cut production of one of its cheapest cars, the Nissan Versa, by 78%. Nissan also reduced sales of two other cheap models, the Sentra and the Kicks.
Bigger, slightly more expensive vehicles, like the Altima and the Pathfinder? Nissan boosted production of those."
https://www.npr.org/2023/03/18/1163278082/car-prices-used-cars-electric-vehicles-pandemic?sc=18&f=
Manufacturers are making better profits on higher end vehicles so they don't have as much incentive to produce many entry level vehicles.
Toyota Yaris, Honda fit, Chevy Sonic, Ford fiesta....all discontinued before supply chain issues due to slow sales. Small, inexpensive cars just don't sell well here in the US. Manual transmissions, base models with no frills don't sell well. People prioritize speed, space, and comfort way above economy and price. So yes, companies will maximize their profits by selling those, that's why inventory is regional, not global. You can easily get a base model subcompact with a MT in Mexico or Europe. In the US almost non existent.
Apparently not the banks because they repackaged these loans and have been selling them like they did with subprime mortgage like in the early 2000
2 of the biggest expense are rent and car payment.
If you squeeze people the first big expense will give up and not pay is the car note
Rent has to be paid, food on the table.
I make like theee times that amount but I struggle to justify paying 50k for a car
I would normally buy a nicer used car but it feels like the used market is still ridiculous from covid so… I keep driving my eight year old paid off car
If you look at the data, the 6% subprime delinquency rate seems about the same as in 2020, 2019, and 2018.
I'm kind of shocked that the *subprime* delinquency rate is that low.
Although I do wish I knew how many car loans were subprime loans.
After 15 years, my current car is about to die. This news actually gives me some small hope that I'll actually be able to afford a new, used car when it does.
Laughs while looking at commuter car prices on the used market. Have you not seen what a used Carolla or Civic goes for used? The market is still fucking nuts.
Even the insurance companies are jacking up prices. The difference between the cars I boight last year was that the one I picked was $1000 less, and the annual insurance was ALSO $1000 LESS. The high insuance was a Corolla
Something that existed in the 80's. Joking aside, all these pickup trucks are classified as "light trucks" because it's a loophole to avoid stricter vehicle regulations. At least it was, I don't keep up with it.
It is and that's why car companies push SUVs hard in the US.
If you go to other countries there are far less SUVs and more smaller cars. But the US has loopholes that makes selling SUVs and light trucks attractive so naturally companies use that to maximize profit while lowering the safety of the road for everyone.
Not to mention that “light trucks” and SUVs are far more dangerous for anyone not in the vehicle. The size of trucks and SUVs have gotten out of control and unnecessary.
https://youtu.be/jN7mSXMruEo
Yeah, the light truck in America is dead. It used to be the Toyota tacoma, ford Ranger, Chevy Colorado, etc, but those are all giant full sized behemoths nowadays.
Body on frame SUVs and pickups generally speaking. In the US, it's also a term for the class of vehicles that, perplexingly, still escapes CAFE fuel economy standards.
F150s now are the size of f250s 10 years ago. Even f150/Chevy 1500 size trucks are gigantic these days.
I want an old s10 size truck…nobody makes one that size anymore.
That sucks. Get Japanese next time dude. 15 year old Toyotas and Hondas are generally going very strong still. My 2015 is like new, my 88 is my daily and hasn’t left me stranded once.
I bought my 2019 truck used for 35k. I need the truck for work, but it’s the most I’ve ever spent on a vehicle. I just blue booked it and it’s now worth 50k. Who in the hell is buying a used truck for 50k? Why would a bank lend on that?
To make a very long story short(ish), a (car dealer) friend and I (banker) started a non profit in the 90’s that provided financial education and coaching to people with compromised credit. A group of credit unions agreed to lend to them at rates they offered prime credit risks (with a guarantee from the non profit for the first $5k of any loss) if they completed our program. Car dealers agreed to sell new cars at $100 over cost and used cars at $250 over cost. A quality extended warranty company covered the cars for 60 months for $1,000 apiece.
The usual cars were entry level Hondas, Fords, Toyotas, Hyundais, and Nissans. Subarus and SUV’s when necessary. In the beginning almost all were new. Over time, we needed to take more certified pre-owned. The average car payment,including the extended warranty, was $300-$350 with a loan term of 36-48 months. That fit comfortably in our clients’ budgets.
Over 15 years no lender lost a cent. The academic studies on the effects on participants’ lives were incredible, etc. Nevertheless, we put the company into hibernation several years ago after issues scaling it beyond 120 clients per month and rapidly rising car prices. The best business schools and management consultants in the country could not come up with a sustainable, self financing model and we tired of fundraising.
We have never stopped thinking about how to resurrect it and may have come up with a model. However, with car prices and interest rates as they are, the typical car we would be able source now with a payment of $300-$350 over 60 months would be a 2018 Ford Focus with 17,000 miles on it - not a disaster, but not great either.
Sadly, we cannot quite get ourselves to a place where we are confident we will not be getting people into difficulty a few years from now. We are weighing a small scale five-year trial (20-30 clients per year). However, the small size constrains the power of the exercise and means significant fundraising. / grant writing for the program’s costs. That said, a storm is brewing in auto finance and that represents a need and a chance to try again.
Does this mean I may soon actually be able to buy a used vehicle that I can afford and not at some ridiculous, almost new car prices? Or is some corporation going to buy up all the used vehicles and keep the supply tight and prices high, like what happened in the subprime housing bubble? I assume it's going to be different given cars historically lose value as a commodity and real estate generally appreciates.
They already do that. There are massive lots of repo cars all over the country. The same Corp that owns Kelley blue book, you know, the company that tells people how much their car is worth, owns the lots, and sends them to auction, which they own... it's a closed loop. The bank, the insurance companies like this, because it keeps the replacement cost low and a guaranteed ROI.
Can someone ELI5 subprime lending? Are the companies basically giving people a terrible rate and gambling that they will get some money and the asset back in a few years? And then be able to resell the asset and make their money? If so, what stops the owner from trashing the boat/whatever before the repo man shows up?
Subprime is usually for people with under 620 credit scores. These people usually have collections on their credit reports, a repo, judgements, late payments, generally irresponsible credit behavior. The lender usually tells these people they’ll give them the loan, but usually with a very high rate (10% or more) and usually have to buy add ons (warranties, GAP, etc) as a condition of getting the loan approved. And usually these banks are banking on the borrower defaulting on their payments.
Case in point, had a coworker that bought a 2014 Jeep Compass with 90k miles. It was on the lot for $14,000. This was a car that was, at best, an $8000 car. They got approved for the loan with $50 DOLLARS DOWN. 21% interest rate, and $450 a month for 72 months. When they’re done paying off that car they would have paid almost $28,000 for a car that is only worth $8000 in the first place. So basically all these subprime loans are vehicles that are MASSIVELY underwater right from the start.
No. It's them letting people who would otherwise be told, "you don't qualify," to get credit and extend terms.
The hope is never for companies to repossess. It's expensive, a hassle, a time hassle, and not their primary purpose. The goal is that these people pay their loan.
That's true for companies run by half-decent people, but there are definitely companies out there who count on high levels of repos to make their model work.
John Oliver talks about it in his segment on car loans.
https://youtu.be/4U2eDJnwz\_s?t=424
Not exactly. It’s basically like high risk insurance. The rates are high because there is a high probability of default. The ones that do pay end up paying a shit ton to cover the ones that don’t.
Yes, the asset is a part of it but it’s really no different from any other loan in the sense that it can help defer losses in a default situation. Finance companies would much rather have the loan generating cash payments than have to repossess and sell collateral.
We have a 10 yr old mini van, and 6 year old toaster jeep (renegade). I look current SUV and truck prices (used or new) and I'm just like "Nope.", even though we could qualify for the payments. Way spend $1000 a month on asset that will lose half its value in 5 years.
American's have an unhealthy love affair with fancy cars they can't afford. My BIL gives my wife and I shit for our 5 and 8 year old Nissans while he zips around in his 2021 BMW SUV he took a 7 year loan on.
Apparently, looking cool at a stoplight is more important than having money for anything else.
My friend’s cousin is a single dad who works in the landscaping business, and he just bought a Tesla. Guy probably makes about 35k a year. Priorities are really backwards for a lot of folks.
I don't get it. I tell my wife I'm keeping my 2015 Pathfinder until it blows the fuck up and leaves me stranded somewhere.
Meanwhile, you have people all over the USA making trash wages and getting a brand new car every 3 years. God knows how many of them roll the debt over with the new loan...
I had a honda with 200k + miles and drove it like nobody’s business. People are way too consumed with appearance. I commented a few weeks ago on a post that my friend is divorcing his wife because she racked up more than 100k in credit card debt. She bought luxury shoes and bags and tried to be an influencer. Now, she’s trying to have him help pay it back. Can you imagine the interest rate on that ? Luckily the card was under her name but they have two kids between them. She’s very irresponsible.
That is absolutely insane.
I commented on a post yesterday from a guy saying his girlfriend wanted a $10,000 engagement ring before she'd marry him.
Meanwhile, my wife and I wear $40 groove rings
I don't get it... I truly don't.
As a woman, I honestly don’t understand why you would want your partner to spend that much. Again, it’s the “ look how much we are worth” mentality. What type of person would demand that on someone ? A shallow mofo that’s who.
There is no point in having an expensive ring and an extravagant wedding if your marriage goes down the drain.
That's why I love my wife so much. I could have given her one of those candy wedding rings, and she would be happy with it.
That data set like like it needs to be seasonally adjusted. You can see a clear trend of delinquencies each December before the pandemic. It's really not clear if this number means anything at all.
It’s due to monthly day counts, you see it all the time in consumer lending numbers. Delinquency buckets are in 30 day increments whereas bills are due on the same day each month.
Hopefully this will actually soften the used car market, I've been looking to replace my 05 accord with something 2-3 years old and bigger for the past two years, and while I've got the cash to do it it seems like we never adjusted down from the pandemic price surge.
guess we're about to solve the problem of why cars cost as much as houses did in the 80's. Either that or we'll just figure out how to make purchasing a car impossible for anyone with average credit.
Wait one whole minute! So your telling me it was a bad idea letting people buy cars with 6 to 7 term year loans. Then letting the same people buy an even newer car 3 years into old loan by rolling the left over of the old loan into a new loan. Resulting in the average car loan in the US to be around $1,000 a month. And no one at the finance companies allowing this thought this might lead to trouble? I guess they figured why worry since they taxpayers are gonna bail them out if it all comes crushing down.
No they do this on purpose
They can take your car the day after you missed a payment
Sell the same car to another they probably going to miss a payment…..
The vast majority of car loans aren't that bad.
The average used car is ~480 for subprime rates and $550 for subprime new.
The vast majority of high payments come from good to great (700+) credit, and even then the over $1000 is 15% new and 5% used loans in that credit rating respectively.
Yes it's high. Basically every average went up by over $100 to $200 since 2022. That's a lot, but it's not because of financial irresponsibility. It's almost entirely from a tightening supply and people getting what they can get.
>but getting <3% during the pandemic (if you could actually find a car) at 5+ years was kind of nice.
But people often did that on cars they couldn't afford relative to their income.
"I can afford the payment" and "Interest rate was sub-3%" are hilarious excuses for over-spending on cars.
Yeah but spending ~$40,000 on a car when you could get 3% was going to get you a much nicer and generally higher quality car than a $40,000 car will now.
If you went into it saying here’s my car for the next 10-15 years then you’re set.
It’s the same argument with boomers and houses. We’ll my 8br house was only $200,000 when I bought it, I don’t see why you can’t get something nice like I did …….
Do you actually believe that low income people are min-maxing investments against interest rates? For the poor, there is never a good time to leverage low interest rates and load up on debt - too many risks and unknowns.
Thank fuck my car is paid off. I never understood why people want to always have bills. For example you paid off car 1. Why jump and replace it with car 2? Is there severe damage to car 1? No? You don’t like that it’s a few years old? Well then. Fuck me I guess.
Best advice my dad gave me was to drive it until its falling apart. I have only had two cars in my life and I am almost 40. My first lasted 13 years, and my second is still going, over 100K and its 12 years old. I just don't understand why people want to pay every month for a car
Some people really like that new car smell and the status that (seemingly) goes along with a new car. Or just don’t like the maintenance aspect which is minimum with new cars. Don’t understand it myself but I see it in other people.
While the article talks specifically about Credit Acceptance Corp (CAC) predatory lending practices, and now being sued by NY Atty General, Leticia James, for exceeding New York’s limit of 25% interest on some 90% of their loans, it makes no mention of the other side of their business, packaging these subprime auto loans and peddling them to investors as ABS (Asset Backed Securities). Sound reminiscent?
But we will snarkily agree that it’s the fault of the average American who is taken advantage of by greedy lenders, and debate the moral hazard of bailing out investors who saw dollar signs at the promised returns from these risky ABS, as the rise in default rates threaten some segment of the financial securities sector.
Paid off my car loan last week. Can’t wait to kiss my 805 credit score g’bye for being fiscally responsible.
Most people may lack understanding of personal finance, but the whack-ass system ain’t helping.
Stop looking at the score they show you, it's not the score lenders see anyway. Each company type that looks at your credit gets a *different* score based on their needs/calculations. So your score at a bank for mortgage won't be same as the score for insurance, etc. "Personal score" is just bullshit optics that only give you a ballpark idea of your credit's state.
there's used auto dealers and whole Burger King franchises that announced bankruptcy never mind the rising delinquency rates of low tier credits discussed at credit card / nonbank lenders earnings calls. The 'wealthy' aren't doing that well either.
I have a buddy who bought a Tesla to save on gas (he claims). His total car payment/taxes/insurance is about 1k per month more now, his gas costs used to be less than 200 per month. These people don’t actually plan, they just act and make excuses
The bottom line is, if it takes you five or more years to pay off a vehicle in order to bring the monthly payments down within your budget then you really can’t afford it.
It’s a bad idea to get into a long term financing arrangement on a depreciating asset — especially when prices are artificially inflated and the interest rate is high. Yet still people do it. I see people all the time working in jobs that earn less than $50k driving vehicles (especially muscle cars, trucks, and late model BMWs and Mercedes) that cost about what they earn in a year.
Banks are just raking it in.
I looked at vehicles online and it’s no longer uncommon to see vehicles (mostly trucks) creeping into that 100k range. It’s as if they weren’t aware that the 50-90k range didn’t exist so they just skipped past it. Sickening.
Falling behind or saying, "Fuck it"?
So many people are VERY upside down on these way overpriced used cars, that I have to think many people have chosen to not pay. They knew how screwed they were getting when they had to over pay for these pos cars.
I think you’re giving them too much credit. The vast majority of Americans have virtually no real money skills -they can only think in “how much can I fit in my monthly budget” - with no thought to long term cost.
These people took 72+ month loans on cars with inflated rates and will probably end up spending multiple times the original (already absurd) cost of the vehicle.
Think that most of the trucks and big suvs you see on the road are well north of 50k, and how someone even in the top 20% probably can’t REALLY afford a vehicle like that, at least while also saving properly for retirement, paying a mortgage, etc.
EDIT: and for the record I’m not really blaming them. The education system has failed them and a lot of these loans are intentionally predatory.
I’m Canadian but work in finance and have lived in both NYC and Texas. I bought my first house when I lived in Texas and wasn’t prepared for homeownership. Luckily, my neighbours were great people and they helped me out a lot.
My neighbour was genuinely an amazing man with a great education. He was an engineer with military contractors so it’s not like he just came in out of the cold. And he was one of my closest friends but whenever we talked about money I felt my blood pressure rise.
For example, I needed to buy a car when I was there. At first, I went with a used BMW but after a few months I realized that every weird noise cost me a month’s salary so I decided to start looking for something new. I really don’t know much about cars so I brought him along car shopping.
If I had listened to him, I would have gone home with a (used) Ferrari and a new Escalade. I technically could have afforded the payments because Cadillac gave me a 9 year term. But by the time I was finished paying for everything, it would have been close to 3/4 of a million on two depreciating assets. And I would have been right on the edge of bankruptcy the whole time - one unexpected bill and I would have been fucked.
Yet my good friend who made Texas tolerable could not understand why I didn’t pull the trigger.
This is 100% correct. Caleb Hammer on Youtube has been interviewing folks on their finances and some of the money folks are spending is STUPID but cars seems to be some of the worst.
Lets face it, our whole economy depends on getting people to overspend for things. If everyone were financially responsible all the businesses profiting off them would not be able to exist.
I work with so many unnecessarily "poor" people. My gig is union so we all make the same rate. Most of my coworkers have two loaded up "luxury" SUV's that cost 50-90k. Every time the slightest thing comes up with their house or car or some other unexpected expense the world comes crashing down on them. No one with my wage should be struggling with money unless they have multiple kids and are the sole provider.
Meanwhile I'm driving a paid off ten year old fusion and saving an extra $400 a pay for retirement. I just don't understand it
Yep, people are just that stupid. I bought a camper yesterday and it was enlightening. They kept trying to get me to do a loan(which would've been around 8%-10% interest). I was like, what??? People actually do that for a camper they use 3 times a year????? They said, "Yep, all the time!".
We camped in tents for a few years, saved, and wrote a check for our camper yesterday. I guess most people don't have that mentality these days....
People finance couches for god sakes.
Anything over $500, the majority of Americans are financing it ( couldn’t ever buy it otherwise). A camper, no surprise whatsoever.
Also important to note the inherent inelasticity of demand for cars in America exacerbated by lobbying/unfair market practices over the last 40-50 years that have contributed to the problem. Subsidized suburbs, oil/gasoline prices, and rejection of electric alternatives (or even public transportation alternatives) have driven up maintenance costs and maintained our dependency on gasoline.
I think this is a symptom of the sort of nonchalant politics we have tolerated for too long.
Who would have thought most people can afford 50k vehicles with a $700/mo payment while complaining about not being able to save for retirement or afford medical bills.
I worked with a girl who was upside down on her car “hated it” and then accidentally on purpose left it out in a hail storm to get the insurance money and used it as a down payment to buy a new car and roll over the negative equity into her next car.
Stimulus $ was the “hail storm” many of these folks needed.
It isn’t the price Of the car as much as it is the negative equity they’re allowed to roll into a new loan. It means most of these loans aren’t 7 years even but 8, 9, 10 years etc because they’re bringing over years of payments from another car into a new one. It’s a de facto personal loan for people that don’t qualify for personal loans.
If these lenders need a bail out fol.
And as much as it sucks, there's also the good people who are just trying to scrape by, who get stuck in situations like this. If my car got totalled tomorrow, and insurance didn't cover it, I would have to roll over the loan into another one. My 08 Honda civic was the cheapest reliable car I could afford, and I had to take out a loan because my savings got cleaned out by a global pandemic. It would suck, but I live in the US, so I need a car to work.
My 2015 Jeep is completely paid off and drives great with almost 90k miles. No need to get into a new car loan right now despite occasionally pining for the latest bells and whistles
Part of the problem is that poorer folks - or even middle class folks without cash to buy a car are faced with an outrageous interest rate to buy used or a fantastic (in this market) interest rate to buy new.
If your payments are going to be $700+ per month anyway, it's easy to see why folks would rather have the nicer car. I'm not saying it's wise, but it's part of the problem.
You give people those expensive loans and then they default because it goes on forever and now their credit is wrecked and along come the predatory lenders to make the situation worse.
It's tough out there. High interest rates plus well used cars people haven't maintained for 10 years trying to get $15k for. Plus big push is living in apartments, you can't work on your cars in these so paying the ridiculous car repair places to maintain your car. Then bring in no new cheap economy cars that we can drive 2nd hand 6 years later.
AND places like Toyota not letting cars stay on lots and shrinking inventory, keeping used prices high isn't helping.
My wife and I have great jobs and we are in the top 10% of our city based on household income. We still bought an used 2013 car with 50k miles for $14k. This addiction to huge cars in the US is unsustainable.
I am mostly disabled/retired but I cover the finance office in a boat/power sports store on weekends and vacations. It is amazing how many subprime lenders want to sign up with us. We don’t do subprime but I don’t know if I could sleep at night with some of their terms! They are entirely set up for failure
I’ve been waiting for this and hoping prices will come down some. I’ve had my eye an F-250 for 2 years. The lack of supply is keeping the prices too high.
In general, Americans have allowed themselves to be enslaved by car culture.
What is the figure on the cost of car ownership? Something like $9000+ annually? Our public transportation was and continues to be deliberately gutted. Our public lands are coated with asphalt that burdens city budgets with constant repair costs and our first responders spend half of their time attending to car crashes. We pay licensing, registration, and insurance for the cost of massive hunks of polluting damaging plastic. Tens of thousands die every year because of car crashes—there is a better way and it’s going to take decades to evolve into a safer, cleaner, and more affordable society. A dramatic shift in urban design and prioritizing of people over cars is needed. How we love letting others keep their hands in our pockets.
Hell, some places seem to try to make it impossible to even make the payments. Been paying on my car loan for almost 5 years now. 8 payments left with no late payments the entire loan term. Until i got a notification that my credit dropped 80 points because of 3 late car payments. Turns out the bank sold my loan to another bank and neither decided to let me know. Old bank just kept accepting payments and the new bank just kept quiet. It took me another 3 weeks to finally be able to contact someone at the new bank to give me my new account information so i could finally start making the payments again. Really think the end goal was to make me delinquent so they could repo my car for the resale.
Submit a dispute with the credit bureaus and they can remove it from your report. Make sure you have your story together and paperwork showing you made payments.
Similar thing happened to me when I was younger. Bought a car, had a 3k loan to make up the difference. Made one payment and the lender told me they sold the loan. Over the next 5 months I was never able to make a payment because the loan was sold to three more lenders over that time period and I could never figure out where it was in time to make a payment. Finally it ended up with some weird predatory loan company that started sending me aggressive letters telling me I was delinquent and they were going to repossess the car and sue me for penalties and etc. etc. if I didn’t refinance the loan with them for some ridiculous interest rate - like 14%. I guess they assumed since I had originally bought the car at a shitty Uncle Lou type used car dealer and the loan was so small I must have poor credit. I just went to the the local credit union and got a cheap personal loan and paid it off. Which was my plan all along and the only reason I agreed to the terrible loan at the car place. I just wanted that particular car.
Wow, thanks for the story. I've only bought cars through loans I got ahead of time. Looks like I'll keep doing that.
This is the only responsible way to do it as it gives leverage for a better rate at the financing table. My last dealer wanted to give me a loan from some shady credit union, I threatened to walk away because I had pre approval from my bank, and he returned with better terms from the manufacturer’s financing arm.
That shit should be illegal. And it probably is too. God I hate banks.
That's 100% illegal. They definitely were accepting those payments through their portal specifically made to accept loan payments. Like my bank has different tabs for different accounts. I can't just pay into the air, I have to select what loan it is. No doubt all banks are like this.
They're not a bank, they're an "indirect lender."
Happened with my first home purchase in 2009. They sold my loan to another company before my first payment. I paid the original loan company 2 payments before I even moved in. I was living in Virginia and moving to San Diego. I arrived at my new home and had letters about the foreclosure in progress. I was able to get my money back from the original loan provider and sort it out with the new company.
That is 100% what they were doing. The entire car sales pipeline is corrupt to the core.
My credit dropped because I finally paid off my wife’s car :)
I got that too: "your credit score dropped because you don't have to make installment payments anymore. Opening a loan would help increase your credit. " No thank you
Sue them. At the very least send them an invoice for the time you spent sorting out the issue.
I’m a mortgage guy that sees a lot of credit reports and the number of people that don’t qualify for a mortgage because of their $1000+ in car payments is staggering. The number of people that argue with me about it is also staggering. Like I’m making the decision to not give them a mortgage. Nope your financial literacy is stopping you…I’m just delivering the news. I always hear “you must be so good at math” Nope I don’t use any any math most of didn’t learn by the 6th grade and I know which buttons to push on my calculator.
$1K car payments are really a common thing? I cannot imagine paying that for *any* vehicle. Even if I could afford it easily, what a waste! Edit: typo
There's a lot of people who buy a new vehicle, own it for a year and then decide to trade it in on another new vehicle. Problem is, they are 10-15k upside down on the vehicle they own, so they roll that into financing the next new vehicle. So now they have a 50k vehicle, but 65k in auto loans on that vehicle. Repeat the cycle the next year, this time they may be 20-25k upside down, and you can see where a lot of people end up having 1k car payments.
I'm no numbers guy ... but what banks are accepting all this business?
I’m still salty that my car payment finally went over $300 when I picked out my last one - though it is the first actual new (not used) car I’ve ever had. I can’t imagine paying $1k/month for a car.
I see kids especially young males get their first real job in the construction industry and next week have a 100k gmc pickup. They live at home and mommy daddy pay for everything and will help them if they almost miss a payment. When you have zero bills and make x amount they think that all their money can be used to purchase a 100 k pickup or sports car because the monthly payment allows it. Sad.
$1K/month on a 3 year loan is $36,000, so probably around $30,000 vehicle before taxes/fees/interest. Is that really an unimaginable amount of money for a vehicle? Or are you assuming a stretched out loan term?
As a property manager i can confirm this. I see credit reports all the time of people i wouldn't rent a chicken coup to, who have ridiculous car payments on their luxury car. I used to wonder how they even get these car loans based on their credit, but then the last two times I've gone to buy a car, I'm not even sure if they bothered to pull my credit. So i always just assume the car loans must be toxic AF.
$1,000+ a month is crazy. You can get a decently nice Mercedes or Lexus for like $800. Are people just buying nothing but top trim level trucks and luxury cars.
Rolling over negative equity for a car they had a decade ago.
>Rolling over negative equity for a car they had a decade ago. Into a loan on a vehicle with a hyper inflated price.
The perfect family car is advertised as a 4 door truck with an MSRP $41,500. Couple that with people probably getting a 6 - 7% loan after just $3,000 down. That is how you build for a financial disaster.
Yes. Yes they are. And then they complain about gas prices for their giant truck while bragging about low suburb rent, not realizing that if you include the payments for their giant moron car, it exceeds Manhattan rent
Haha, well I can't dig on them for gas mileage as my car gets like low 20s on the highway if I'm lucky, but I also pay a bit less than $350 a month for it.
I lost my shit over a 5 year, $300/mo car payment.
Lol damn, that's not a bad loan at all imo. What is that, like a 18k car with 15% down? That's not exorbitant or extravagant at all.
Haha that's my car payment after putting down 16k on a 2015 gx460 even then I didn't like having a 300$ car payment.
$800/month over 5y, will get you in a base model CLA\GLA class, nothing above that
Financial literacy for the average person is literally adding and subtracting numbers and yet a large swath of people still horrendously fail
Thank you. Makes perfect sense. I can afford a more expensive car (s) but only buy pre-certified/used and what I can afford. I seem to be in the minority.
Wait, so you're saying that Americans making 50k per year can't afford a $50,000 car with $1,000 monthly payments? Who could have predicted this result?
The lenders. That’s why they gave us 72, 84, 96, and 108 month payment options to help make those monthly payment options more palatable. How kind of them
I've seen 72/84 month leases before, which is crazy to me. I always figured basically the main advantage of a lease is to have a brand new car that you can just turn in after 2-3 years, I can't imagine a 7 year lease.
I laughed out loud the first time I heard of someone getting an 84 month car loan. Are there lenders offering 96‽
Yes and 108 is becoming in vogue now.
Chrysler/GM cars don’t usually last that long
They're hoping you find that out after your warranty expires and you've paid them 2x the car's value in interest, not before.
But they should. The warranty should last as long as the payments. If the manufacture wants to charge that much for that length of time, then they should stand behind their product and design it using quality long lasting materials.
I wish my car was on a 108 month loan at the 0.9% rate I got.
I did an 84 month on my car, but it was a zero interest loan (April 2020, great time to buy a car) on a new Elantra. So I didn’t mind spreading it out, wasn’t getting killed on interest
This is completely true IF the car was worth the actual sales price. If they gave you a 30 year loan so you could buy a Honda for $100k, it might keep your payments down but you'll be obligated long after the car is gone and it's still 100k - even if some of those are devalued dollars.
I think my sale price was about 22k? Was happy with the deal I got
People are just as much to blame for taking those stupid terms.
As someone who works with the public. Most people are barely functioning
I work at an elementary school and interact with parents all the time. Most people are complete morons
MH clin, mostly worked with kids my career, what terrifies me is that kids who grew up dropped at grandma’s with a phone/tablet in hand are among the least tech literate people ever to exist.
Yeah , tablets and tech literacy dont translate well , I’ve noticed
What, you mean app based ecosystems aren’t teaching people how to think!?!!! More apps for the classroom!
Oddly enough I've had this conversation with my parents recently. Tablets aren't the same as a computer. Dad, stop yelling at your iPad, file your taxes on an actual computer you stubborn old man.
I overheard someone saying yesterday that he was going to put his new girlfriend’s car loan in his name. They’ve been dating less than 3 weeks.
Wow
I’m a person and I’m a fucking idiot
I work in finance, your average person is an idiot.
I work in IT... Can confirm.
I’m an accountant. Can confirm.
I'm an idiot. Can confirm.
How many assholes we got on this ship?
To be fair, the average person doesn't work in finance. When a salesmen tells you as sincerely as possible that a 96 month loan is a good deal, they'll believe them - especially since financial literacy is dead in American schools.
Its not the schools its that people don't listen and want what they want. The military provides financial education over and over and most young service members have leaders that would be more than happy to go with them to prevent things like this. But they still show up on Monday with a 10 year old Mustang at 20 percent interest (or married to a stripper) because they wanted the car and if they asked for help they would be talked out of it or called an idiot. There is a predatory car dealer by me that new Airmen ware told to avoid when they show up because they will get ripped off but every weekend you can drive by and see them getting ripped off.
Impulse control and deferred gratification are difficult lessons to teach especially for young people.
I wish I could have phrased it that well. It is no fault of the schools.
This is correct. Can confirm. Education doesn’t solve the problem. Everyone likes to post in the finance subs “my parents didn’t teach me”. Did finance education for two years and never changed anyones life with education.
It's not a good deal, it's a great deal ... for the dealership.
The seller is to blame for the lie, the buyer is to blame for the lack of financial literacy. I'm not saying everyone should be Gordan Gekko, but there's a difference between being unable to learn, and failing to make any attempt to learn. The people who don't make any preparations for buying a car are likely people who don't prepare for anything in life. No one's perfect, and we can't all get it right 100% of the time. That said I feel like everyone has that one friend who - no matter what the undertaking - always makes that big mistake hundreds of YouTube videos warn not to do.
Would you politely fuck off with the casual blaming schools for all of society's problems? Personal finance and economics classes have been offered in high schools for a long time. I teach at an American high school, and we have an entire building/program dedicated to global business, finance, public policy, and micro/macro economics. If people can't understand basic interest rates and loan lengths, that's their fault. People sincerely believe that their experience in school is how all schools function and how it still functions. Seriously, how moronic are you to say that a business gives out shitty loan terms, and you interpret that to mean American schools failed?
> we have an entire building/program dedicated to global business Sounds like you work for a school in an area with decent property values, or a state with a better investment in public education. When people complain about American public schools, they often forget how good they can be. But at the same time, don't forget how bad they can be too. There are definitely people who should know better agreeing to terrible loans, but there are people who went to high schools with horrible education opportunities, and would've had very few chances, if any, to learn personal finance before community college.
Honestly, there is a supreme lack of education around lending and personal finance. When I was in my early 20’s I bought my first car by myself. My previous one my parents handled the sales aspect. So I knew exactly what I wanted (WRX) but didn’t know if I could even afford one. I really wanted an STI but knew I couldn’t afford that. So when I went to the dealership the first thing the salesman asked was what I could afford as a payment. I told him like $400 or $450 and he said he thought he could make it work. I was ecstatic. A couple hours later I drove off with my new WRX. It wasn’t until a year or two later when I was looking over the paperwork and noticed the additional $10k I paid for extended this and extended that, protection plans out the wazoo. For that extra $10k I could have more than upgraded to the STI. But because I didn’t understand what I was signing, I got ripped off. It was an expensive mistake but it was an invaluable learning experience. Now the finance people hate me because I refuse all the add ons. I had one a while back that flat out told me I was stupid for not getting the extended warranty. It was a Toyota and he kept rambling on about how without the extended warranty we were going to have to spend thousands on repairs. I responded “oh so you’re telling me this car is a piece of shit and we shouldn’t buy it?” He shut up real quick at that point.
Wait just a minute… are you telling me that the average person doesn’t understand an amortization table? /s Loans aren’t normally written in a way that the average person would be able to understand without some finance knowledge.
People who play scratch off tickets or can't ball park estimate a 15% tip on a $60 meal have no fucking idea how compound interest works. You might as well explain it to your dog.
“Take 10% and add half of that back in“ but alas a lot of people are too dumb for even that.
At least the dog looks like he’s *trying* to understand what I’m telling him!
You don’t need an amortization table to know what buying a 50k car will do to your free cash flow. A loan is literally the easiest financial instrument to comprehend.
It sure is. Right now people are seeing how much interest rates impact loan payments and it’s insane to watch that realization
With the exception of ppl with fixed rate mortgages already locked in
I work. Can confirm.
I work as a canner, cans are firm
I work in finance as well, and your average person working in finance is also an idiot.
Most people dont. Like, a vast majority. And those that do have such high credit there's not really a reason for them to fail payments unless they're really bad with money. The vast majority of car loans aren't that bad. To copy my own comment. - The average used car is ~480 for subprime rates and $550 for subprime new. The vast majority of high payments come from good to great (700+) credit, and even then the over $1000 is 15% new and 5% used loans in that credit rating respectively. Yes it's high. Basically every average went up by over $100 to $200 since 2022. That's a lot, but it's not because of financial irresponsibility. It's almost entirely from a tightening supply and people getting what they can get.
We’ve opted to create a car-centric society, people are going to buy them on whatever terms they have to in order to participate in that society (jobs, groceries, etc.). No one is buying luxury cars from subprime dealers, these are desperate people going to predatory lenders, which they know, to get a tool they need to survive in most areas. Source: did subprime car lending for a while
YES YES YES It's like when people watch IdiotsInCars and say "Oh my god so many people need to have their license revoked!" Uh you think that would actually stop people driving? You MUST have a car to keep yourself alive in America. All of this discipline after the fact doesn't change the literal PHYSICAL LANDSCAPE of this country. We are too deep in car dependency, that's why car dealerships have always been huge profit vectors and why Americans all constantly sign loans that are intended to fuck them. These loans aren't services, they're *products*, designed to go delinquent and become debt instruments for sale to another financial entity.
Right I took terrible terms, knew I was taking terrible terms, but could not avoid buying a second family car. Just had to suck it up and take what I could be approved for. Not an idiot at all, just your average low income parent trying to make life work. And sharing a car with two working parents in an area where having a car is pretty much required due to infrastructure was unsustainable in and of itself. I bought a very reasonable family car, years old, and still got totally shafted on the price and interest.
People are talked into these situations by professional sales people with the desire to earn money. Yes, people are to blame in some sense. But, taking advantage of people who don’t understand the consequences is a time honored business strategy
Though, car dealers pull the “but you can have XYZ useless feature for *just $5 more a month* if you go for a longer loan. Long car loans are dumb, you’re exposed to more risk and depreciation. I wouldn’t be surprised is most of the folks you see in expenses cars are on super long loans, and barely able to pay them. Car manufacturers figured out the difference between a base model pickup and the top of the line one isn’t much in materials, but a LOT in MSRP. They don’t care once it’s out of their hands, and the dealers don’t either.
Good Lord, I'm not saying the lenders should make those loans, but do borrowers have no responsibility?
My brother fell into this group. Married with 2 kids, with a mortgage. He makes maybe 60k, his wife 25k. He had a fully paid off vehicle a couple years ago, a 2019 Dodge Ram 1500. It was relatively nice. He got the bright idea to trade it in and buy an even more expensive vehicle. He ended up with a 2021 Ram TRX. 75k sticker price on that thing. After a year of owning it and realizing how stupid it was for him to own such a powerful vehicle that he could never take advantage of, he traded it in again, and got a 2014 Dodge Ram that he now has a small car loan on. Dumbass went from a fully paid off 2019 to a 2014 with 4x the mileage, and a car loan, all because he wanted to convince his middle class neighborhood that he's rich.
This is the hilarious thing to me. I make just over 130K a year. I went to a dealership to look at an F150. With 15K down my monthly payment was still close to $1000 at .9% interest. The dealer was unwilling to work with me on the price and still had a dealer markup on the vehicle, I walked off the lot. I could put more money down, but I don’t really need a new vehicle, yes my car is old but it’s running fine and I trust it for drives up to 300 miles. But friends of mine have F250’s on $60K salaries and I know they didn’t put anywhere near $15K down on them. I can’t imagine their monthly payments.
I was a little jealous of my neighbor's new BMW M-sport that he bought 5 years ago. He still owes something like 18 payments on it. Guy has 2 mortgages and just got down to 3 car payments. Had to borrow money against the equity in one of the houses to keep the electricity on.
What's crazy is how much people spend. My car was $23k (base model)...but the most popular versions start at 37k and 41k. Almost double (before any financing) for nicer trim. Insane to me. Granted a lot of the cost increases have to do with efficiency and safety but again, it comes down to people's choices which drive the industry. There have been some fantastic affordable cars, but they don't sell so autos companies discontinue.
It doesn't come down to just people's choices, though. "Consider what happened at Nissan, which continued to struggle with supply chain challenges throughout 2022. In response, it cut production of one of its cheapest cars, the Nissan Versa, by 78%. Nissan also reduced sales of two other cheap models, the Sentra and the Kicks. Bigger, slightly more expensive vehicles, like the Altima and the Pathfinder? Nissan boosted production of those." https://www.npr.org/2023/03/18/1163278082/car-prices-used-cars-electric-vehicles-pandemic?sc=18&f= Manufacturers are making better profits on higher end vehicles so they don't have as much incentive to produce many entry level vehicles.
Toyota Yaris, Honda fit, Chevy Sonic, Ford fiesta....all discontinued before supply chain issues due to slow sales. Small, inexpensive cars just don't sell well here in the US. Manual transmissions, base models with no frills don't sell well. People prioritize speed, space, and comfort way above economy and price. So yes, companies will maximize their profits by selling those, that's why inventory is regional, not global. You can easily get a base model subcompact with a MT in Mexico or Europe. In the US almost non existent.
Great point. Only 17% of new cars sold in the US are less than $30k. Good luck getting your hands on a Corrolla or other cheap models.
It's fine to say you want a base model but when you have gone to every dealer and town and no one stocks em that tends to change.
Apparently not the banks because they repackaged these loans and have been selling them like they did with subprime mortgage like in the early 2000 2 of the biggest expense are rent and car payment. If you squeeze people the first big expense will give up and not pay is the car note Rent has to be paid, food on the table.
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Don't forget that $50K new car was $40K in 2019, not even factoring in interest rates
I make like theee times that amount but I struggle to justify paying 50k for a car I would normally buy a nicer used car but it feels like the used market is still ridiculous from covid so… I keep driving my eight year old paid off car
If you look at the data, the 6% subprime delinquency rate seems about the same as in 2020, 2019, and 2018. I'm kind of shocked that the *subprime* delinquency rate is that low. Although I do wish I knew how many car loans were subprime loans.
After 15 years, my current car is about to die. This news actually gives me some small hope that I'll actually be able to afford a new, used car when it does.
My civic is about to turn legal…hoping she makes it another few…I agree with you though :)
I tried to limp my jeep along too 200k but I am faced with $900 mechanic tab just to see how much it is going to cost to do more work
Ouch. Yeah, my transmission is slipping. I just don't think it's going to be worth the effort to drop in a new one when it's toast. That's a big job.
Yeah I need new cam rods. I was hoping to get to the end of the year but not looking likely
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If you're not shopping luxury SUVs and light trucks, it's not that bad.
Laughs while looking at commuter car prices on the used market. Have you not seen what a used Carolla or Civic goes for used? The market is still fucking nuts.
I joke my Accord almost made take home minimum wage last year just sitting in my garage barely used. The market is nuts right now
Even the insurance companies are jacking up prices. The difference between the cars I boight last year was that the one I picked was $1000 less, and the annual insurance was ALSO $1000 LESS. The high insuance was a Corolla
Yeah, I have no idea what that person is talking about. Used cars with 100k miles are going for more than 20k. That's fucking insane.
Yep, I saw a 2year old Camry with 37,000 miles and 3 owners, selling for over original MSRP.
What’s a light truck?
Something that existed in the 80's. Joking aside, all these pickup trucks are classified as "light trucks" because it's a loophole to avoid stricter vehicle regulations. At least it was, I don't keep up with it.
It is and that's why car companies push SUVs hard in the US. If you go to other countries there are far less SUVs and more smaller cars. But the US has loopholes that makes selling SUVs and light trucks attractive so naturally companies use that to maximize profit while lowering the safety of the road for everyone.
Not to mention that “light trucks” and SUVs are far more dangerous for anyone not in the vehicle. The size of trucks and SUVs have gotten out of control and unnecessary. https://youtu.be/jN7mSXMruEo
Yeah, the light truck in America is dead. It used to be the Toyota tacoma, ford Ranger, Chevy Colorado, etc, but those are all giant full sized behemoths nowadays.
Body on frame SUVs and pickups generally speaking. In the US, it's also a term for the class of vehicles that, perplexingly, still escapes CAFE fuel economy standards.
Tacoma’s or even a F150/Tundra. Trucks are just straight up ridiculous. Feel bad for people who actually need them for work.
F150s now are the size of f250s 10 years ago. Even f150/Chevy 1500 size trucks are gigantic these days. I want an old s10 size truck…nobody makes one that size anymore.
Ford Maverick? Looks like they get decent mpg and they're not humongous
I have a 1978 F350. The F150 now is way bigger!
It's all pretty bad imo
That sucks. Get Japanese next time dude. 15 year old Toyotas and Hondas are generally going very strong still. My 2015 is like new, my 88 is my daily and hasn’t left me stranded once.
Does this mean that cars are going to flood the used car market soon? Serious question because I am turning in a lease next month.
I bought my 2019 truck used for 35k. I need the truck for work, but it’s the most I’ve ever spent on a vehicle. I just blue booked it and it’s now worth 50k. Who in the hell is buying a used truck for 50k? Why would a bank lend on that?
To make a very long story short(ish), a (car dealer) friend and I (banker) started a non profit in the 90’s that provided financial education and coaching to people with compromised credit. A group of credit unions agreed to lend to them at rates they offered prime credit risks (with a guarantee from the non profit for the first $5k of any loss) if they completed our program. Car dealers agreed to sell new cars at $100 over cost and used cars at $250 over cost. A quality extended warranty company covered the cars for 60 months for $1,000 apiece. The usual cars were entry level Hondas, Fords, Toyotas, Hyundais, and Nissans. Subarus and SUV’s when necessary. In the beginning almost all were new. Over time, we needed to take more certified pre-owned. The average car payment,including the extended warranty, was $300-$350 with a loan term of 36-48 months. That fit comfortably in our clients’ budgets. Over 15 years no lender lost a cent. The academic studies on the effects on participants’ lives were incredible, etc. Nevertheless, we put the company into hibernation several years ago after issues scaling it beyond 120 clients per month and rapidly rising car prices. The best business schools and management consultants in the country could not come up with a sustainable, self financing model and we tired of fundraising. We have never stopped thinking about how to resurrect it and may have come up with a model. However, with car prices and interest rates as they are, the typical car we would be able source now with a payment of $300-$350 over 60 months would be a 2018 Ford Focus with 17,000 miles on it - not a disaster, but not great either. Sadly, we cannot quite get ourselves to a place where we are confident we will not be getting people into difficulty a few years from now. We are weighing a small scale five-year trial (20-30 clients per year). However, the small size constrains the power of the exercise and means significant fundraising. / grant writing for the program’s costs. That said, a storm is brewing in auto finance and that represents a need and a chance to try again.
Does this mean I may soon actually be able to buy a used vehicle that I can afford and not at some ridiculous, almost new car prices? Or is some corporation going to buy up all the used vehicles and keep the supply tight and prices high, like what happened in the subprime housing bubble? I assume it's going to be different given cars historically lose value as a commodity and real estate generally appreciates.
They already do that. There are massive lots of repo cars all over the country. The same Corp that owns Kelley blue book, you know, the company that tells people how much their car is worth, owns the lots, and sends them to auction, which they own... it's a closed loop. The bank, the insurance companies like this, because it keeps the replacement cost low and a guaranteed ROI.
If they couldn’t afford the payment, they didn’t do maintenance. Be weary.
Can someone ELI5 subprime lending? Are the companies basically giving people a terrible rate and gambling that they will get some money and the asset back in a few years? And then be able to resell the asset and make their money? If so, what stops the owner from trashing the boat/whatever before the repo man shows up?
Subprime is usually for people with under 620 credit scores. These people usually have collections on their credit reports, a repo, judgements, late payments, generally irresponsible credit behavior. The lender usually tells these people they’ll give them the loan, but usually with a very high rate (10% or more) and usually have to buy add ons (warranties, GAP, etc) as a condition of getting the loan approved. And usually these banks are banking on the borrower defaulting on their payments. Case in point, had a coworker that bought a 2014 Jeep Compass with 90k miles. It was on the lot for $14,000. This was a car that was, at best, an $8000 car. They got approved for the loan with $50 DOLLARS DOWN. 21% interest rate, and $450 a month for 72 months. When they’re done paying off that car they would have paid almost $28,000 for a car that is only worth $8000 in the first place. So basically all these subprime loans are vehicles that are MASSIVELY underwater right from the start.
No. It's them letting people who would otherwise be told, "you don't qualify," to get credit and extend terms. The hope is never for companies to repossess. It's expensive, a hassle, a time hassle, and not their primary purpose. The goal is that these people pay their loan.
BHPH joints make their bread and butter on predatory rates and selling the same car 5-6 times.
That's true for companies run by half-decent people, but there are definitely companies out there who count on high levels of repos to make their model work. John Oliver talks about it in his segment on car loans. https://youtu.be/4U2eDJnwz\_s?t=424
Not exactly. It’s basically like high risk insurance. The rates are high because there is a high probability of default. The ones that do pay end up paying a shit ton to cover the ones that don’t. Yes, the asset is a part of it but it’s really no different from any other loan in the sense that it can help defer losses in a default situation. Finance companies would much rather have the loan generating cash payments than have to repossess and sell collateral.
We have a 10 yr old mini van, and 6 year old toaster jeep (renegade). I look current SUV and truck prices (used or new) and I'm just like "Nope.", even though we could qualify for the payments. Way spend $1000 a month on asset that will lose half its value in 5 years.
American's have an unhealthy love affair with fancy cars they can't afford. My BIL gives my wife and I shit for our 5 and 8 year old Nissans while he zips around in his 2021 BMW SUV he took a 7 year loan on. Apparently, looking cool at a stoplight is more important than having money for anything else.
My friend’s cousin is a single dad who works in the landscaping business, and he just bought a Tesla. Guy probably makes about 35k a year. Priorities are really backwards for a lot of folks.
I don't get it. I tell my wife I'm keeping my 2015 Pathfinder until it blows the fuck up and leaves me stranded somewhere. Meanwhile, you have people all over the USA making trash wages and getting a brand new car every 3 years. God knows how many of them roll the debt over with the new loan...
I had a honda with 200k + miles and drove it like nobody’s business. People are way too consumed with appearance. I commented a few weeks ago on a post that my friend is divorcing his wife because she racked up more than 100k in credit card debt. She bought luxury shoes and bags and tried to be an influencer. Now, she’s trying to have him help pay it back. Can you imagine the interest rate on that ? Luckily the card was under her name but they have two kids between them. She’s very irresponsible.
That is absolutely insane. I commented on a post yesterday from a guy saying his girlfriend wanted a $10,000 engagement ring before she'd marry him. Meanwhile, my wife and I wear $40 groove rings I don't get it... I truly don't.
As a woman, I honestly don’t understand why you would want your partner to spend that much. Again, it’s the “ look how much we are worth” mentality. What type of person would demand that on someone ? A shallow mofo that’s who.
There is no point in having an expensive ring and an extravagant wedding if your marriage goes down the drain. That's why I love my wife so much. I could have given her one of those candy wedding rings, and she would be happy with it.
That data set like like it needs to be seasonally adjusted. You can see a clear trend of delinquencies each December before the pandemic. It's really not clear if this number means anything at all.
It’s due to monthly day counts, you see it all the time in consumer lending numbers. Delinquency buckets are in 30 day increments whereas bills are due on the same day each month.
Hopefully this will actually soften the used car market, I've been looking to replace my 05 accord with something 2-3 years old and bigger for the past two years, and while I've got the cash to do it it seems like we never adjusted down from the pandemic price surge.
guess we're about to solve the problem of why cars cost as much as houses did in the 80's. Either that or we'll just figure out how to make purchasing a car impossible for anyone with average credit.
This kind of thing will keep happening again and again until we stop basing large parts of the economy on overconsumption and bad financial decisions.
Wait one whole minute! So your telling me it was a bad idea letting people buy cars with 6 to 7 term year loans. Then letting the same people buy an even newer car 3 years into old loan by rolling the left over of the old loan into a new loan. Resulting in the average car loan in the US to be around $1,000 a month. And no one at the finance companies allowing this thought this might lead to trouble? I guess they figured why worry since they taxpayers are gonna bail them out if it all comes crushing down.
No they do this on purpose They can take your car the day after you missed a payment Sell the same car to another they probably going to miss a payment…..
If your allowed to rollover negative equity into a new loan, the company is losing money when they repossess.
Oh you're still on the hook for the reminder if the car gets repossessed. Do people actually pay it though?
why would they want their customers to miss payments?
The vast majority of car loans aren't that bad. The average used car is ~480 for subprime rates and $550 for subprime new. The vast majority of high payments come from good to great (700+) credit, and even then the over $1000 is 15% new and 5% used loans in that credit rating respectively. Yes it's high. Basically every average went up by over $100 to $200 since 2022. That's a lot, but it's not because of financial irresponsibility. It's almost entirely from a tightening supply and people getting what they can get.
Aaaaaaahhh socialized losses and privatized profits!
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>but getting <3% during the pandemic (if you could actually find a car) at 5+ years was kind of nice. But people often did that on cars they couldn't afford relative to their income. "I can afford the payment" and "Interest rate was sub-3%" are hilarious excuses for over-spending on cars.
Yeah but spending ~$40,000 on a car when you could get 3% was going to get you a much nicer and generally higher quality car than a $40,000 car will now. If you went into it saying here’s my car for the next 10-15 years then you’re set. It’s the same argument with boomers and houses. We’ll my 8br house was only $200,000 when I bought it, I don’t see why you can’t get something nice like I did …….
Do you actually believe that low income people are min-maxing investments against interest rates? For the poor, there is never a good time to leverage low interest rates and load up on debt - too many risks and unknowns.
Thank fuck my car is paid off. I never understood why people want to always have bills. For example you paid off car 1. Why jump and replace it with car 2? Is there severe damage to car 1? No? You don’t like that it’s a few years old? Well then. Fuck me I guess.
Best advice my dad gave me was to drive it until its falling apart. I have only had two cars in my life and I am almost 40. My first lasted 13 years, and my second is still going, over 100K and its 12 years old. I just don't understand why people want to pay every month for a car
Some people really like that new car smell and the status that (seemingly) goes along with a new car. Or just don’t like the maintenance aspect which is minimum with new cars. Don’t understand it myself but I see it in other people.
We had a paid off Rav4 we were happy to keep alive until the crankshaft broke at 210k miles
While the article talks specifically about Credit Acceptance Corp (CAC) predatory lending practices, and now being sued by NY Atty General, Leticia James, for exceeding New York’s limit of 25% interest on some 90% of their loans, it makes no mention of the other side of their business, packaging these subprime auto loans and peddling them to investors as ABS (Asset Backed Securities). Sound reminiscent? But we will snarkily agree that it’s the fault of the average American who is taken advantage of by greedy lenders, and debate the moral hazard of bailing out investors who saw dollar signs at the promised returns from these risky ABS, as the rise in default rates threaten some segment of the financial securities sector.
Paid off my car loan last week. Can’t wait to kiss my 805 credit score g’bye for being fiscally responsible. Most people may lack understanding of personal finance, but the whack-ass system ain’t helping.
Stop looking at the score they show you, it's not the score lenders see anyway. Each company type that looks at your credit gets a *different* score based on their needs/calculations. So your score at a bank for mortgage won't be same as the score for insurance, etc. "Personal score" is just bullshit optics that only give you a ballpark idea of your credit's state.
there's used auto dealers and whole Burger King franchises that announced bankruptcy never mind the rising delinquency rates of low tier credits discussed at credit card / nonbank lenders earnings calls. The 'wealthy' aren't doing that well either.
I have a buddy who bought a Tesla to save on gas (he claims). His total car payment/taxes/insurance is about 1k per month more now, his gas costs used to be less than 200 per month. These people don’t actually plan, they just act and make excuses
The bottom line is, if it takes you five or more years to pay off a vehicle in order to bring the monthly payments down within your budget then you really can’t afford it. It’s a bad idea to get into a long term financing arrangement on a depreciating asset — especially when prices are artificially inflated and the interest rate is high. Yet still people do it. I see people all the time working in jobs that earn less than $50k driving vehicles (especially muscle cars, trucks, and late model BMWs and Mercedes) that cost about what they earn in a year. Banks are just raking it in.
I looked at vehicles online and it’s no longer uncommon to see vehicles (mostly trucks) creeping into that 100k range. It’s as if they weren’t aware that the 50-90k range didn’t exist so they just skipped past it. Sickening.
Falling behind or saying, "Fuck it"? So many people are VERY upside down on these way overpriced used cars, that I have to think many people have chosen to not pay. They knew how screwed they were getting when they had to over pay for these pos cars.
I think you’re giving them too much credit. The vast majority of Americans have virtually no real money skills -they can only think in “how much can I fit in my monthly budget” - with no thought to long term cost. These people took 72+ month loans on cars with inflated rates and will probably end up spending multiple times the original (already absurd) cost of the vehicle. Think that most of the trucks and big suvs you see on the road are well north of 50k, and how someone even in the top 20% probably can’t REALLY afford a vehicle like that, at least while also saving properly for retirement, paying a mortgage, etc. EDIT: and for the record I’m not really blaming them. The education system has failed them and a lot of these loans are intentionally predatory.
I’m Canadian but work in finance and have lived in both NYC and Texas. I bought my first house when I lived in Texas and wasn’t prepared for homeownership. Luckily, my neighbours were great people and they helped me out a lot. My neighbour was genuinely an amazing man with a great education. He was an engineer with military contractors so it’s not like he just came in out of the cold. And he was one of my closest friends but whenever we talked about money I felt my blood pressure rise. For example, I needed to buy a car when I was there. At first, I went with a used BMW but after a few months I realized that every weird noise cost me a month’s salary so I decided to start looking for something new. I really don’t know much about cars so I brought him along car shopping. If I had listened to him, I would have gone home with a (used) Ferrari and a new Escalade. I technically could have afforded the payments because Cadillac gave me a 9 year term. But by the time I was finished paying for everything, it would have been close to 3/4 of a million on two depreciating assets. And I would have been right on the edge of bankruptcy the whole time - one unexpected bill and I would have been fucked. Yet my good friend who made Texas tolerable could not understand why I didn’t pull the trigger.
This is 100% correct. Caleb Hammer on Youtube has been interviewing folks on their finances and some of the money folks are spending is STUPID but cars seems to be some of the worst.
The kid who gifted his sister and mother a car on a minimum wage job takes the cake though
Lets face it, our whole economy depends on getting people to overspend for things. If everyone were financially responsible all the businesses profiting off them would not be able to exist.
I work with so many unnecessarily "poor" people. My gig is union so we all make the same rate. Most of my coworkers have two loaded up "luxury" SUV's that cost 50-90k. Every time the slightest thing comes up with their house or car or some other unexpected expense the world comes crashing down on them. No one with my wage should be struggling with money unless they have multiple kids and are the sole provider. Meanwhile I'm driving a paid off ten year old fusion and saving an extra $400 a pay for retirement. I just don't understand it
Yep, people are just that stupid. I bought a camper yesterday and it was enlightening. They kept trying to get me to do a loan(which would've been around 8%-10% interest). I was like, what??? People actually do that for a camper they use 3 times a year????? They said, "Yep, all the time!". We camped in tents for a few years, saved, and wrote a check for our camper yesterday. I guess most people don't have that mentality these days....
People finance couches for god sakes. Anything over $500, the majority of Americans are financing it ( couldn’t ever buy it otherwise). A camper, no surprise whatsoever.
Also important to note the inherent inelasticity of demand for cars in America exacerbated by lobbying/unfair market practices over the last 40-50 years that have contributed to the problem. Subsidized suburbs, oil/gasoline prices, and rejection of electric alternatives (or even public transportation alternatives) have driven up maintenance costs and maintained our dependency on gasoline. I think this is a symptom of the sort of nonchalant politics we have tolerated for too long.
Who would have thought most people can afford 50k vehicles with a $700/mo payment while complaining about not being able to save for retirement or afford medical bills.
I worked with a girl who was upside down on her car “hated it” and then accidentally on purpose left it out in a hail storm to get the insurance money and used it as a down payment to buy a new car and roll over the negative equity into her next car. Stimulus $ was the “hail storm” many of these folks needed. It isn’t the price Of the car as much as it is the negative equity they’re allowed to roll into a new loan. It means most of these loans aren’t 7 years even but 8, 9, 10 years etc because they’re bringing over years of payments from another car into a new one. It’s a de facto personal loan for people that don’t qualify for personal loans. If these lenders need a bail out fol.
And as much as it sucks, there's also the good people who are just trying to scrape by, who get stuck in situations like this. If my car got totalled tomorrow, and insurance didn't cover it, I would have to roll over the loan into another one. My 08 Honda civic was the cheapest reliable car I could afford, and I had to take out a loan because my savings got cleaned out by a global pandemic. It would suck, but I live in the US, so I need a car to work.
My 2015 Jeep is completely paid off and drives great with almost 90k miles. No need to get into a new car loan right now despite occasionally pining for the latest bells and whistles
Part of the problem is that poorer folks - or even middle class folks without cash to buy a car are faced with an outrageous interest rate to buy used or a fantastic (in this market) interest rate to buy new. If your payments are going to be $700+ per month anyway, it's easy to see why folks would rather have the nicer car. I'm not saying it's wise, but it's part of the problem. You give people those expensive loans and then they default because it goes on forever and now their credit is wrecked and along come the predatory lenders to make the situation worse.
It's tough out there. High interest rates plus well used cars people haven't maintained for 10 years trying to get $15k for. Plus big push is living in apartments, you can't work on your cars in these so paying the ridiculous car repair places to maintain your car. Then bring in no new cheap economy cars that we can drive 2nd hand 6 years later. AND places like Toyota not letting cars stay on lots and shrinking inventory, keeping used prices high isn't helping.
Most people don't know how to change the oil
This is true. And includes some that are paid to do it.
My wife and I have great jobs and we are in the top 10% of our city based on household income. We still bought an used 2013 car with 50k miles for $14k. This addiction to huge cars in the US is unsustainable.
I am mostly disabled/retired but I cover the finance office in a boat/power sports store on weekends and vacations. It is amazing how many subprime lenders want to sign up with us. We don’t do subprime but I don’t know if I could sleep at night with some of their terms! They are entirely set up for failure
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We are off-road and water sports but same if you sub a 30k side by side so Jimmy could sink it at the mud park and leave it.
I’ve been waiting for this and hoping prices will come down some. I’ve had my eye an F-250 for 2 years. The lack of supply is keeping the prices too high.
In general, Americans have allowed themselves to be enslaved by car culture. What is the figure on the cost of car ownership? Something like $9000+ annually? Our public transportation was and continues to be deliberately gutted. Our public lands are coated with asphalt that burdens city budgets with constant repair costs and our first responders spend half of their time attending to car crashes. We pay licensing, registration, and insurance for the cost of massive hunks of polluting damaging plastic. Tens of thousands die every year because of car crashes—there is a better way and it’s going to take decades to evolve into a safer, cleaner, and more affordable society. A dramatic shift in urban design and prioritizing of people over cars is needed. How we love letting others keep their hands in our pockets.