Consumerist: car loans

Toyota: Bad Economy, Bad Car Sales, Cheap Financing

Meg Marco — Fri, 03 Oct 2008 14:53:25 EDT

Toyota, long resistant to the sort of interest-free financing deals that their domestic counterparts survive on, is offering 0% interest financing on 11 of their vehicles, including Corolla and Camry, the Tundra full-size pickup truck, Matrix; RAV4, Highlander, FJ Cruiser, 4Runner and Sequoia SUVs; Sienna minivan; and Tacoma pickup truck.

Toyota experienced a 32% slide in U.S. sales in September.

Toyota offers interest-free loans on 11 vehicles [Reuters]
(Photo: blue_j )

In an effort to spur sales, General Motors ...

Chris Walters — Wed, 25 Jun 2008 12:01:55 EDT

In an effort to spur sales, General Motors is offering no-interest, six-year loans on new vehicle purchases through June 30th. Unfortunately, only the slow-selling models (i.e., not very fuel efficient) are included in the sale. Oh, also they're raising prices on 2009 models. [New York Times]

Will Car Loans Be The Next Credit Meltdown?

Meg Marco — Mon, 31 Dec 2007 12:59:43 EST

The LA Times has an article about car loans that caused our jaw to drop. As someone who bought both the cars she has owned with cash, (from friendly human beings who had cars but didn't want them anymore), the staggering amount of debt that people are willing to sign up for just to drive a slightly newer car made us feel sort of ill.

Gone are the days of the three-year car loan. The length of the average automobile loan hit five years, four months in October, up more than six months from 2002, according to the Federal Reserve. And nearly 45% of loans written today are for longer than six years. Even some staid lenders owned by the carmakers, such as Toyota Financial Services and Ford Credit, are offering seven-year financing. And a few credit unions, particularly in the West, are tinkering with the eight-year note.

At the same time, the amount of money drivers owe on their cars is soaring. In October, the average amount financed hit $30,738, up $3,500 in just a year and nearly 40% in the last decade, according to the Fed. More troubling, today's average car owner owes $4,221 more than the vehicle is worth at the time it's sold — up from $3,529 in 2002, according to industry analyst Edmunds.

The longer loans are directly related to the higher balances. By extending the length of loans, lenders keep monthly payments down. But because these loans take longer to pay off, a much larger piece of the principal remains unpaid at the time the car is traded in.

Meet Cindy, a compulsive car purchaser:

Cindy Gerhardt has rolled over so much debt on successive vehicle purchases — five in three years — that she now owes almost $43,000 on two trucks worth no more than $29,000 and, she says, perhaps as little as $22,000.

Faced with car payments that exceed her monthly mortgage, she tried to trade in the pair for a single vehicle. But with so much unpaid principal on the vehicle loans, the only offer she got from the dealer was to trade in one truck on yet another new vehicle — and increase her debt by another $25,000.

"It's our own fault that we traded in vehicles so many times, but we never thought it would get to this," said Gerhardt, a secretary who lives with her husband and two children in Clinton, Okla. She recently tried to refinance her mortgage, she said, but was declined because her car payments were too high. "Not one dealer ever said this was a problem. Ever. I never had a dealership say no."

Yes. This will end well. The article goes on to note that delinquencies on car loans issued this year are up 20%.

New cars that are fully loaded — with debt [LA Times](Thanks, Arthur!)
(Photo:Ken Hurst/Associated Press)

The Subprime Meltdown Is The Tip Of The Credit Iceberg

Carey — Sun, 09 Dec 2007 09:45:35 EST

The ongoing subprime meltdown is merely the first destructive wave of credit catastrophe to wash over Wall Street, according to Slate's resident explainer. Americans drunkenly bandy credit around in several forms: mortgages are the most prevalent loans turning sour, but credit card debt, student loans, and auto loans are silently conspiring to threaten our macroeconomic well-being.

Other types of consumer debt, which have nothing to do with housing and nothing to do with subprime, are going bad, too. The Wall Street Journal reported today that "about 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans." In October, Fortune's Peter Gumble warned that a similar plague may soon afflict credit-card companies. In October, credit-card giant Capital One Financial reported that the delinquency rate on credit cards for the third quarter of 2007 was 4.46 percent, up from 3.53 percent in the third quarter of 2006. "Given current loan growth and delinquency trends," Capital One reported, it "expects the U.S. Card charge-off rate to be around 5.25 percent in the fourth quarter."
The stock of First Marblehead, which has enjoyed explosive growth making private (i.e., not federally guaranteed) student loans, has been hammered in recent days because Moody's, the ratings agency, concluded that loans it had made "appear to be defaulting at a significantly higher rate compared to loans originated through school financial aid offices." The Wall Street Journal reported that "seventeen months after First Marblehead arranged one 2005 package of student loans, 2% had defaulted, according to the company's monthly reports to note holders. But last month, a comparable 2006 package—also 17 months after issue—had a default rate of 3.98%."

So what does all this mean to you? The imploding subprime market is already driving up the price of consumer credit—loans of all stripes are more expensive—but things could potentially get much worse. Somewhere between "manageable bad" and "let's all walk to California and write about the Dust Bowl" bad. If we had the means, we'd come up with catchy colored Livestrong-y "My Debt Is Under Control!" tchotchkes. But since we don't, we'll simply beg: please use your credit responsibly.

Debt Be Not Proud [Slate]
FURTHER READING: The Grapes Of Wrath [Amazon]
(Photo: Wikipedia)

Don't Finance Your Car With Your Home Equity Loan

consumerintern — Fri, 15 Jun 2007 16:03:22 EDT

Maryland consumer attorney Sonya Smith-Valentine warns not to use a home equity loan to purchase a car. Her reasoning makes sense. When you use a home equity loan, you pay for the for many years longer than you would with a regular car loan, multiplying the interest you end up paying.

The same is true for rolling a new car into your refinance. If you refinance your house and take out enough money to purchase a car, for example, you pay for it over the life of the home loan, which is probably 30 years. Even though your home loan interest rate is lower than a car loan interest rate, you will pay more for the car by rolling it into your home loan.

Get a car loan instead. Or, if you have already done this, Pay more than the minimum monthly payments so that your principal is restored more quickly. — SAM GLOVER

(Photo: Ben Popken)