Wednesday, July 22, 2015

Car Loan Numbers

Car Loan Numbers (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.

Zero Hedge is reporting the latest car loan numbers from Experian. The total outstanding car debt in this country has passed the $905 Billion mark. 84.9% of new cars carry a note and 55.6% of used car owners are making those monthly payments. About 72% of these loans are considered prime or better. That means 28% are considered something less than prime.

What could possibly go wrong?

I see great opportunities for the repo-man. By the way, lists the average salary for a repo-man at $82,000 a year. Not too shabby for a job that doesn’t require a degree.

Unless you need a $3,000 car to drive to work, pay cash; even if you need a $3,000 car to drive to work, pay as much down as possible.

The rule of thumb for car depreciation: A new car will lose approximately 20% of its value in the first year. Then it will lose 15% per year until it is worth about 10% of its original cost. Going into long term debt to buy something that is absolutely guaranteed to drop in value is—Insane! Don’t do it. Buy the best used car you can afford.

Let’s say you buy that $3,000 clunker. I bought my first car in 1973 for $600 cash. That would be about $3,000 in 2015 money. I managed to squeeze roughly seven years and over 70,000 miles out of that rust bucket, before I sold it for $50. Let’s go back to the list of current factoids found at the top of the page.

$488 (average monthly car payment) X 7 Years X 12 Months/Year = $40,992

Dear Lord have mercy! If you paid yourself that monthly car payment for seven years, you would be able to pay cash for a BMW 428i, base model $40,750 MSRP.

The monthly car payment is a middle class curse. It is simply unnecessary. You need to get to work. You need to get to the doctor’s office and Walmart. You don’t need to become a debt slave to your automobile.

Remember what Mr. Goodwrench told us, “It’s not just a car, it’s your freedom.”

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