Auto Loan Madness Continues As US Car Buyers Take On Record Debt, Lunatic Financing Terms
Way back in June, we noted that auto sales had reached 10-year highs on record credit, record loan terms, and record ignorance. We based that assessment on the following set of Q1 data from Experian:
- Average loan term for new cars is now 67 months — a record.
- Average loan term for used cars is now 62 months — a record.
- Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
- Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
- The average amount financed for a new vehicle was $28,711 — a record.
- The average payment for new vehicles was $488 — a record.
- The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.
In short, the “renaissance” in US auto sales is being driven (no pun intended) by increasingly risky underwriting practices and this is leading directly to the securitization of shoddier and shoddier collateral pools in a return to the “originate to sell” model that drove the housing bubble over a cliff in 2008.
As Comptroller of the Currency Thomas Curry recently put it, “what's happening in the auto loan market reminds me of what happened in mortgage-backed securities in the run-up to the crisis.”
Of course you can count on Experian and its incomparable senior director of automotive finance Melinda Zabritski (who never saw a subprime loan with ridiculous terms she didn’t like) to let you know that as dangerous as this dynamic most certainly is, everything will be fine.
On Wednesday, Experian released data for Q3 and well, let’s just say that the trend we’ve observed and documented over the past two quarters is still intact.
First, the percentage of new and used vehicles with financing rose to 86.6% and 55.3%, respectively. The trend is readily apparent:
Next, the number of leased vehicles as a percentage of the total continues to rise:
The percentage of subprime and nonprime in the leasing category rose meaningfully Y/Y:
And the average credit score on loans for new vehicles just hit its lowest level since before the crash:
While the average amount financed is up across the board:
As are average payments:
And loan terms:
“As the price for a new or used vehicle continues to rise, leasing has become a more viable financing option for consumers looking to maintain an affordable monthly payment,” the aforementioned Melinda Zabritski said on Wednesday.
Well yes Melinda, leasing has become a "more viable financing option" for people who otherwise couldn't afford a car as has acquiescing to the extension of loan terms. On the lender side of the equation, continuing to feed Wall Street's securitization machine means constantly expanding the finite pool of eligible borrowers and that means lower underwriting standards.
What's incredible here is that Experian should be shouting about this from the rooftops and instead they're making up excuses for why it isn't a disaster waiting to happen. Auto loan ABS supply is set to rise by a quarter this year to around $125 billion and keeping that party going means making more loans. For those who missed it, here's a look at the latest data from the NY Fed on originations by FICO:
See a problem there?
Of course the bigger question for the US economy is this: what happens when this bubble bursts just as auto inventories hit their highest levels relative to sales since 2009?
(20 votes)
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Cash for clunkers 2 anyone?
as cars rapidly lose value over time, this is yet another avenue of the direct destruction of Capital
"84 month loan"?? It's a fucking 7-year loan. When it's a ten-year loan are we going to call it "120 months"? This is worse than your retarded neighbor who tells you his kid is "38 months old".
I personally can't wait for the 10-year loans to start getting rolled out. Fucking double-digit year loans on a rapidly depreciating asset. What kind of degenerate madness is this?
They will never be able to fix it when it falls apart in 6 years. Car looks nice! Yeah but my CV Boot is cracked and is fucking up my axle. Also, my struts are FUBAR! #TiteCarDoe
If you believe the apocalypse/rapture is imminent then taking out a long loan makes sense.
Giggle.. giggle.. have not had a car payment for the last 15 years and will likely never own a vehicle that isn’t at least 6 years old again
People pay $500? Per month? For their car loans?
You gotta be kidding me? I wouldn't pay $500 a month for a place to live.
Am I just out of touch with reality? Or is everyone crazy?
I owned a fairly large printing and direct mail company during the last sub prime run up. I printed and mailed millions of pieces of junk mail for the mortgage and car financing whiz-bangs.
I also sold credit data info to them to market/mail to. It all started out at around a 700 credit score then saturated...until they hit the crack pipe and lowered it to 600 then down to 540- 560 or so as the standard to finance. ....then the fucker blew up.
I'm retired now but I wonder where we are with those scores today? I know my score is at least in the high 700's, but I have not checked in years as I don't plan on buying anything on credit and my 2001 4Runner will probably go another 230K miiles. We are (Wife and I) "Top 5%ers"....I refuse to try and keep up with these kids working those good jobs spinning signs...rich bastards!
How's that cardboard and underpass working out?
same if you think hyperinflation is coming....
once that hyperinflation hits... paying it off will be easy.... assuming you still have some sort of income
That's when dem damn dinus' decided to steal it and torch it on the other side of town. I'm sure NIST would come to bat for me and obfuscate the fuck out of the physical evidence to....
Wait. I'm not a billionaire Jew. Nevermind.
Interest only car loans coming soon!
Option ARM's for clunkers?
it's called a lease
Only lease pussy.
It would be nice to have a 10 year loan so I can get that boat I could never afford. .
Heard an ad on the radio last night -- 0% interest for 75 months on all new Toyotas.
They're getting desperate.
Who'd a thunk that we'd have 30 month loans on phones, too? I'd love to see everyone use cash to pay for everything for just a month and see what happens.
My iPhone gave up the ghost after 4 years. If I want to renew my 2-year contract I can get a free 5s (no need for a 6 or 6s), but then I'd lose out on a plan discount of some sort. However, I can keep the same plan rate if I "rent" my new phone month after month, upgrading every year or two. WTF!?
In either case AT&T had me on the hook for a few hundred more every year. What did I do? I went on craigslist, bought a barely used 5s for $200, dropped in my SIM card and fucked off to the rest of my day. The guy I bought it from-- poor looking fucker who was selling both his and his wife's because they just upgraded to the 6s. He'll burn through that $200 in 10 months by my math, just renting their shiny new phone from AT&T.
If this phone lasts for 4 more years think of how much I'll saved versus the other two scenario. There's a reason I have the cash in my pocket to do this, and if it wasn't for a phone it'd be for a medical bill, or a new (used) car etc. The world is allergic to saving; additcted to convenience.
-W.
This is really laughable. They still don't want to admit there's a problem when it's right in front of them.
Buying a new car is wealth destruction, especially at the prices that people are paying now for an asset that does nothing but depreciate.
I'm really astounded by the number of people willing to throw away the money they earn for a new expensive car. It really blows my mind that people continue to do this, borrow to the hilt just to drive something new, something they think they deserve but yet can't afford.
If financing weren't available the market for cars would collapse, it's being propped up by easy credit.
Anyone who doesn't believe this is pulling demand from the future is a moron.
First there was the obamaphone, next there will be the obamacar (to go along with your obamacare).
Yeap my neighbour has two brand new Mercs on the drive, leased but he tries to make out they are bought. Utter wanker "look at me" Yeah I'm looking at you bell end. Marketing has a lot to answer for, obviously if this guy drove a couple of five year old cars bought and paid for he would feel inadequate and a failure. The sheep deserve to be fleeced!
The last new car I bought was a 1985 8 cyl Caprice classic 8 passenger wagon with fold down back seats. Got around 25 mpg. Junked it when it had 282,000 miles on it and my wife talked me into it when *I* wanted to just replace the engine as the lifters weren't lifting below 60 degrees F. .(Her winning argument was, "But honey, you're holding the tail gate closed with a ROPE!!!") {Sigh}
Currently driving an '03 Buick Century with about 150K on it, thinking about getting a 2nd car before inflation makes everyone crazy. My car buying rule to date has been to pay no more than $1k per 10k miles of estimated remaining life, no more than 70k on the clock if it's a mid sized car, 6 or 8 cyl eng (NEVER buy a 4 cyl) - price goes down as mileage goes up, of course.. Seems to work pretty good. Don't know how many miles on the '82 4 dr 1T. The odometer quit working about 8 or 10 years ago.
Hauled a lot of kids and plywood in that old Chebby, and a lot of gravel & coal in the truck, and still hauling firewood in the trk.
Driving a 1995 Black Lincoln Town Car. Blacked out windows. Had it repainted, even blacker - removed pin stripes and chrome. Blackwalls on it. People don't ride my ass or cut over on me anymore. They also get out of my fucking way. They don't know if I'm a mobster or a hoodster. Has 100,000 miles and drives like a yacht in the water. New sound system. I can carry six people and the trunk can carry a spare (car). Don't owe a fucking dime to anyone for anything. People that don't see this crap coming pretty much deserve what they get. Eisenhower said it best in 1961:
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry (therefore - we're screwed) can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.
All 1oz Silver coins are €12 @ EurGold
https://www.eurgold.eu/silver/silver-coins/
Desperate people in desperate times. O-bomba leading the lambs to the slaugter house
Obama has become the emperor of a scum-bag-paradise.
(all hail kortan)
Obozo, the Judas goat.
My 05 Surburban has no payment and never did. Buntcha tards.
You have a problem with paying vig? You an anti-Semite or something?
Inflation? What inflation?
the monthly payment is the same, so no inflation. just like in the grocery store when the can of veggies stayed the same price but now has 14.5 ounces instead of 16. According to the Fed, that's zero inflation cause "the can" still costs the same. the monthly payment for the car is still the same and Americans only care about the amount of the monthly payment, not the vig, so no inflation. it's the new Fed math
Yeay I contributed to these statistics! Just got 84 month financing on a new rig. I enjoyed owning my last car outright but didn't enjoy the fucker breaking down on me. Whatever, now I have a bumper to bumper warranty and my stock went up with the materialistic female demo.
Enjoy continuing making that payment when it's just another aging POS at 5 years.
Pshhh. Maybe Larry Silverstein will pull it well before and I can claim double on the insurance.
Hugh, you seem like a nice guy, but please stay away from women with visible tattoos, or those whose main selling point is, "swallowing is on the menu".
I don't need a crystal ball to see a bad divorce in your future.
That would require a marriage...
I'm not the type to bet a woman half my shit that she wont fuck around on me.
If you're a firm believer in an inflated currency, a nice, long loan is just what the doctor ordered.
My 72 month loan is a short on the Amurikan dollar; if I'm wrong and can't make the payment, come and take it back - who cares?
Not only do you save Joker's ass but you see the bigger picture.
Next round of poontang is on me.
Also, I could have just bought it if I thought selling my silver at $14 was a good idea...
For 0% I have no problem financing. Put down a few grand and buy moar silver!
The gold digging women he dates or the car? :-/
"gold digging women"
Do you work for the Department of Redundancy Department?
cool
A cheaper trick is to buy a 1970s-era van and airbrush "Pussy Wagon" on the side. You'll be swimming in a sea of ladies in no time.
Well where the fuck were you a few weeks ago?
Damnit.
Backpage and valtrex is also another way to go about things.
Floor to headliner shag carpet in day glow colors really gets them hot.
I kind of tried that IN the 70s and it really didn't work so much....just sayin.
Of course rumor has it that pussy is a bit easier to find these days....wouldn't know seeing how I'm in my 22nd year of my third vow of celibacy.
just double up on the payments or send an additional amount towards the principal and you will pay it down quicker. Rule of thumb is you don't want to finance past the term of the warranty.
For loans less than 61 months - BEWARE THE RULE OF 78S!.The p recomputed interest will eat you alive.
Dude... I had to vote you up 'cause you made me laugh!!! ;-D
In May of 2014 I got off the train in Chicago, drove to Indianapolis, and after 3 weeks and with a "job offer" letter in my hand I went to the Toyota dealership and I got at ZIRP loan to buy a 24K CAMRY.
(but here's the thing)
- The Toyota quality ain't there any longer. They're still good cars (way better than a Chevy) but they're not what they use to be.
- They're not cheap, not relative to my income. I wanted to buy a used car, but anything that wasn't crap tended to be within 25% of the asking price for "new" (so, why wouldn't you buy new?)
Any who, this is all hubris, nonsense, and madness ... none of it will end well.
I had NOTHING ...
(and they threw a new CAMRY at me)
Here is my state 3 weeks prior to getting the zirp car loan (not kidding):
https://www.youtube.com/watch?v=CVR87_vTu54