Wednesday, November 30, 2016

Red Flags on Auto Loans

This little item is an alarm bell.

...According to, about 32% of all vehicles traded in on a new vehicle through September this year were “upside down.”...That negative equity averaged $4,832. In short, add $5K to the price of that next vehicle being purchased....

There's more, and here's where it gets interesting:

...The result? The monthly payment on a new vehicle loan is $505 — the highest level ever, Edmunds notes. That higher-than-ever payment is because the average new auto loan was $29,880 in the second quarter of this year,...The average new car loan is for 68 months, but subprime borrowers are getting loans averaging 72 months, or six years. And longer terms are becoming more and more popular. According to Experian, extended loans, ranging from 73 to 84 months, accounted for more than a quarter of all new vehicle loans in 2015.....

IOW, buyers are making the assumption that their "coverage" (income/debt) will be just fine for up to seven years--and lenders are perfectly happy to agree.

But those "lenders" are not Banks.  They are investors who have purchased 'bundles' of car loans. 

Just like the 'investors' who bought bundles of mortgages back in the early-to-mid 2000's.  Remember??

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