Monday, August 24, 2015

Car loans are becoming dangerous to the economy

Remember the mini recession brought on by the subprime mortgage lending collapse? According to financial blog Zero Hedge, we might be doomed to repeat the same mistakes only this time with car loans. (Zero Hedge is a pretty good, anonymously written financial blog).
All the signs are there - from record-high loans to dealers taking shotguns as down payments (seriously). For example, when I say 'record high loans', the average loan term for a new vehicle is now 67 months, and for used vehicles it's 62 months. More frightening still is the number of loans that are 84 months - up to 30% now.
Other indicators are way up too - the average monthly payment is $488 and the average new vehicle price is $28,711. Sure - car prices never go down so you'd expect those numbers to rise - it would be odd if they didn't. But it's the length and size of the loans that is the real issue here - and Zero Hedge points out that many of these loans are going to - guess where? Yes - subprime borrowers. ie. people at greater risk of defaulting on the loans.
It's exactly what happened in the housing market, and greedy banks and financial institutions are about to make it happen all over again but this time in the vehicle market.
If you're looking to finance a vehicle - don't lie to yourself. Figure out how much you can afford and don't, under any circumstances, let the dealer talk you up to a more expensive vehicle or more expensive loan.
The Zero Hedge article can be found here: Don't look now, but the subprime auto bubble may be bursting.