Feds to up Interest Rates

[JPNC]

Personally, If I have to go longer than 60 months to afford the payment, then I can't afford the vehicle. a 72 month loan at todays interest rates its crazy. I try to stick to 48 months whenever possible, or take the 60 month contract and pay the 48 month payment as often as possible. If you look at an amortization chart of a 72 month loan with a 7-8% rate, it will make you sick!

Why wouldnt you take a longer term, 72 or even 84 months, and pay it off early. Wouldnt you have lower payments while paying off at the same time?

Sponsored

 

[Baerkeeper]

Really wanted a Badlands w/ Sasquatch and the Lux Package. But it was close to 60K before taxes and registration. Sadly, I couldn't "afford" it.

Then realized that I can still fulfill my Bronco desire by going with a Basesquatch at $39K at 1.9%.

After exactly a year later when my Bronco was ready for pickup, the interest rate went up to 6%. Really didn't want to pay that so I paid cash and brought it home. Now I fully own my Bronco and have no car payments. I wish I could've "afforded" the Badlands, but still super happy with my Basequatch purchase.

 

[Neps]

According to the Bureau of Labor Statistics, median weekly earnings have increased ~9% from Q1 2021 to Q4 2022, so if you are getting "poorer", it's time to get a new job.

Must be that New Math I can't comprehend, back in my day 3.4 to 6.1 didn't equal 9?

 

[AzureGray6G]

Must be that New Math I can't comprehend, back in my day 3.4 to 6.1 didn't equal 9?

Published by the Statista Research Department:

 

[YULQQKN4]

Why wouldnt you take a longer term, 72 or even 84 months, and pay it off early. Wouldnt you have lower payments while paying off at the same time?

Not my preferred way of doing it. Sometimes if you have the lower payments you tend to allocate extra funds elsewhere and get complacent. This way it forces me to pay off the vehicle quicker and build equity faster. It depends on how regimented you are. You just have to be on top of it and make you you make those extra principal only payments. I have every single bill possible that I can have on auto pay.

What works for some doesn't work for all. Everyone's financial situation is their own and 100% not my business. But I am a Finance Manager and its my job to give people every option possible on how to pay for their vehicle. I just want my customers to be in the best position possible at all times during their vehicle ownership. I've had tons of people thank me for convincing them to take the higher payment and shorter term. No one has ever thanked me on an 84 month loan where they have paid $13000 in interest

 

[prospectfour]

Looking more and more attractive for sure

Agreed, paying cash is looking less dumb than ever. Only some of the old heads would remember a time before cheap money. Looks like the wind is finally blowing the other direction.

 

[TurkeyRun]

When I ordered my BadSquatch in July of 2020, I started squirreling away all my bonuses, part-time job pay, and made a "paycheck deduction" contribution, all going into a credit union savings account. The day my Bronco was ready for delivery 555 days later in January 2022, I wrote them a check and drove it home.

Not all are as fortunate as I am, I get it. The point being with the amount of lead time these things are taking, seems to me that there is ample time to figure out the monetary aspect of it. I mean, it's not like "surprise! Here's a $100K medical/legal bill you weren't expecting"

 

[RagnarKon]

I'll do 5 year loans but make 3 year payments, that way if I do have something come up I have more flexibility in managing my cash flow without missing a payment or paying late. In this case I've been putting what would have been my monthly payment into a savings account ever since I made my reservation, so 2.5 years worth of payments are sitting there for a down payment. However if I can't get a rate under 7% I'm probably just gonna pay cash outright for the damn thing.

Yeah that makes perfect sense. I typically do 4/5-year loans but make payments as if it is a 2/3-year.

What’s bad, in my opinion, is if someone does a 5-7 year loan and they are maxing out their budget to pay for that loan. That likely means they have zero added flexibility in their budget should something pop up. And that’s when a Bronco, which should be a fun vehicle you look forward to driving everyday, could become a massive liability and a source of stress.

 

[coachoates]

these days people are financing the ADMs. crazy.

That is because you can buy gap and cover it. Overall, not the most financial smart decision but to cover an immediate accident, it could be seen as a perk.

 

[BroncoAZ]

In December 2021 I put $11K down on my Bronco and financed the rest at 1.99% for 60 months. I would pay off the loan on my Bronco, but I’m earning more than that on short term CD’s currently. When my Lightning Pro arrived the rates were around 5%, so I paid cash. The dealer was happy to take a personal check for the truck

When I was in my 20’s and early 30’s I wasn’t making much and financed for 72 months on vehicles (and other crap) I couldn’t afford but had to have and went into significant debt. By the time I was 40 I was debt free except for the house and was paying off vehicles in 2 years.

Why wouldnt you take a longer term, 72 or even 84 months, and pay it off early. Wouldnt you have lower payments while paying off at the same time?

The interest paid vs principle in the first 3 years of a 72 or 84 month loan is significantly higher than a 60 month, and the rates are higher. I’d much rather take the shorter loan and save $$$.

 

[Hdscreens]

In south central TX it seems business is slowing down on many fronts. I can sense there’s a lot more people tightening up their wallets. At least around these parts higher interest rates have taken their toll.

 

[Scape Goat]

There are serious concerns about an auto loan "bubble" popping. Lots of people doing dumb things - trading in cars they owe money on and financing that debt into a new vehicle purchase, really long terms (as mentioned), and late payments have been increasing since at least mid-last year. Plenty of articles out there about it.

I financed vehicles for many years. When rates were low or there were special deals, I'd finance for 5 years so I had cushion if something bad happened, but often pay off early, or at least trade in with some equity. I'm glad I've avoided ADM and gotten to a point where I didn't need a loan, but it took years to get there (and some luck).

Hopefully if the bubble does pop, it doesn't tank the economy like the home loan issue did.

I work in automotive. We get notices through our lending when customers file for bankruptcy. We don't see these too often. That said, we received 14 last month.

I am going to pass on my bronco that is in production now. I could pay cash if I wanted. But, there is something unfolding in the economy right now. Not sure how crazy it will be, but I want to be prepared.

Cash is king.

 

[fr8ycat]

The only people worried about the FEDS interest rate are those that couldn't afford it to begin with.
Yes, if you have to go over 60 months you can't afford it.

 

[5PC24]

Yeah its crazy! Most of my banks are financing 130% of invoice or MSRP (depends on bank) or sometimes they use NADA or BlackBook or JD Powers....and advancing up to 130% of that number. Things could get really really really really ugly really quick.

The payment from my bank to the dealer on my Badlands was delayed as the bank didn't have the necessary info to calculate their "Determined Value' of the vehicle. I had put a pretty good amount down so I knew it wouldn't be an issue for loan to value. But after giving the bank all the info they said the determined value was 10% over sticker. I asked them about the Raptor I have on order and for that one they said the determined value was 40% over sticker. When values start dropping I do think a number of lenders could be a bit exposed.

 

[Fmuguira]

The payment from my bank to the dealer on my Badlands was delayed as the bank didn't have the necessary info to calculate their "Determined Value' of the vehicle. I had put a pretty good amount down so I knew it wouldn't be an issue for loan to value. But after giving the bank all the info they said the determined value was 10% over sticker. I asked them about the Raptor I have on order and for that one they said the determined value was 40% over sticker. When values start dropping I do think a number of lenders could be a bit exposed.

I don’t think they “could be” exposed…. I think they will be!! Vehicles are depreciating assets and you start loaning more than invoice and you ll just be underwater quicker. Granted many people will make pymts til the bitter end ( loan payoff) but some won’t for whatever reasons and the loaning institutions WILL get a bath on those loans. The overall loan portfolio works for them because they spread the risk and the good credit risks “ pay for” the bad ones…. Always been that way but think about it; if you re a good credit risk and make your payments you essentially help carry the deadbeats ( who don’t pay and bank ends up stuck) via higher interest rates!!

Sucks but the way the game is played.

Sponsored