An Auto Loan Debt Crisis Looks Imminent
An Auto Loan Debt Crisis Looks Imminent
Car loan debt has ballooned, delinquencies are still rising, and major lenders are leaving the market. Is an auto loan debt crisis coming soon?
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Car payments are a poverty trap. Save and pay cash for cars, it's harder now that used prices are absurd, but it doesn't change the math.
It's not harder. It's not possible for a vast majority of people. You're telling people that are delinquent on their auto loans to "just pay cash" for used cars that are thousands of dollars. Sure you can find a beater for $800-1500 but what happens when the transmission goes or the engine throws a cylinder? Those of us with auto loans don't have the liquidity to pay outright for a decent vehicle.
You don't need to drive a beater forever. At this level cars are basically worth the same you bought them for. A year of driving a 1k beater and saving 500 a month that is less than an average payment leaves you with 7k for a better car.
Minimum wage in most of the USA is $7.25. Working 40 hours a week, 4 weeks of the month is $1160 dollars before taxes and all the other bullshit. Where exactly is that $500 to save coming from?
Most people aren't making federal minimum wage.
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Less than 1% of Americans make federal minimum wage. However, despite your dumb take on the amount of money Americans generally make, I strongly agree that saving $500 a month is a complete possibility for many working Americans
I don't see why they don't just ask their parents for money?
It's like people don't even know how to take care of themselves.
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The other answer, from someone who used to buy beaters - you learn real fast what not to buy.
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Definitely they should.
The Magnuson Moss Warranty Act has given people the right to repair cars since the 1970s. Most people just don't have the skills, time, or tools to fix them on their own.
There are no viable $1500 beaters anymore. Those vehicles now cost $3000-$4000. More if it says "Honda" or "Toyota" on the front.
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Okay, so two years ago. Currently the cheapest two used cars in my local market are a Civic with 348,000 miles on it for $2000, and a 2010 VW with a blown engine for $3000. Even a clapped out 90's Blazer is $5000 if it runs. That's what's out there on Craigslist and Facebook marketplace. Maybe I can go hang around every shady parking lot in town looking to see who's got a lower number soaped on a window someplace, but people in the real world tend to have to work during daylight hours.
And then: Okay, so you found one 80's Chevy Nova that might run. You got extremely lucky. If, as the other poster suggested, you'll treat it as disposable and plan to ditch it after a few months and "buy another," can you do it again? That's even less likely.
Used car prices are still too insane for poor people to be able to count on reliably finding and scraping by with a beater.
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Bold of you to assume that people have an extra $1500 lying around.
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And just cross your fingers that you don't lose your job because you've called in 8 times with car trouble. Buying beaters isn't the right path for most.
It's still cheaper than 30k$ new car over 5 years. It's like two payments for used vehicle and couple more for fixing it right up. Also, pay a good mechanic to inspect car you like prior to buying. Saves money in the long run.
that's not the point. the point is that there are people who can't afford to save money in the long run. not like metaphorically can't afford, like literally mathematically cannot afford.
they are trapped by their existing financial burdens which they already cannot meet and which are getting larger every month thanks to compound interest.
inflation, which normally has the effect of reducing the value of debts over time, is instead making their financial burdens effectively larger too. as inflation drives up the cost of living, wages stay the same and they have ever less of their income available to make debt payments as a result.
I'd hazard a guess they are in hard financial situation due to their lack of self-control and poor finance management. Adding on top of that 30k$ and contract for number of years exacerbates the problem. If you can't afford 1000$ used car, you can't afford 30k$ new car in 200 installments either.
62% of Americans are living paycheck to paycheck.
Don't play this 'they're not good with their money' libertarian bullshit. People aren't being paid very well and essentials have shot up in price.
Saving even $800 is beyond many people's reach.
Am not playing anything. It's like someone doesn't have food to eat this month but decide to buy 60$ game. That person has issues prioritizing and managing money and even if they had more money they'd spend it on stupid stuff.
But you are right, things are more expensive while salaries have remained the same. There's no question about it. However managing your finances is a required skill, even if you earn a lot more than you need. I've seen far too many cases where people who had good income still ended up in debt. You need not look further than lottery winners. Huge amounts of money and most of them end up bankrupt or dead.
Its funny how all you have to hear is "someone is broke" and you already have ideas about their moral character.
If you are broke then you don't buy a new car. Simple as that. Whole argument here is new vs used car. Original commenter is a proponent that car payments are a trap and that used car should be preferred, followed by counter argument that many people can't save up for used car to be paid in cash and payment plans of 200-300$ a month for 2 years are a better idea. My comment to all of that is if you can't save money for used car, you shouldn't be buying a new car and you have bigger problems to worry about. That money should be used to dig oneself out of debt first, then work on getting car. Has nothing to do with morality.
You're buying bad cars, but that aside there's a big range between your $500 shitbox and an overpriced $50,000 penis-extension.
Fyi, beaters can usually be sold for what you paid for them. Buy a beater for $1000, save for better car. Sell beater for $1000, and get $5000 good car.
Any used vehicle has the potential to be poorly maintained and unless you have the time and experience to thoroughly inspect every car you buy, there's a chance that the $4k 2004 Toyota Camry with 130,000mi you bought ends up with a piston rod through the bottom of the block.
On paper it looks like a steal, but you didn't know that it had an oil leak while it was sitting in the garage not being driven for months. Mom and Dad passed away and now it has to be sold along with all their stuff, so the family drove it to their property to make sure it runs. They noticed the oil was low when the light came on so they drained it and added new oil. Now you come along don't see any obvious signs of damage and buy it, but the cylinder wall is warped and it slips a bearing 3 months in. Engine needs a rebuild or you deal with the hassle of selling a car that no car enthusiast is wanting to rebuild an engine in, no dealer wants because it doesn't run, and no highschool kid can use because to get it to run they need to spend $3k on a drop in replacement for the engine.
The scenario you're painting is an infinite money glitch that doesn't exist.
I've driven nothing but beaters and beater-adjacent vehicles all my life. Even though I can afford a nice vehicle now, I don't waste my money. Good test driving and mechanical skill goes a long way.
Oil in the coolant? Coolant in the oil? White smoke? Run away.
Knock? Walk away. Lifter tick? Ask to knock the price down, flush oil. You won't throw a rod bearing on a modern car because it was low on oil a year ago. If it somehow does, you bought a car for less than a car payment. If it lasted 2 months you're still ahead and now you have a parts car, get another.
Always head straight to the scrappers and grab an alternator and starter, put them in the trunk for when one of them eats shit.
Learn to spoon tires or make a friend with a tire machine. Tires are a huge expense and used ones / takeoffs are nearly free. Haven't bought a new tire in many years. Get a plug kit too.
Learn to recharge AC and identify a working compressor with no charge. Then hard ball on the price. "Broken" AC devalues the car terribly and is a $10 fix.
Standard transmission cars go for a song, especially with slipping clutch they are worthless, learn to change a clutch and you can have one for decades. My favorite beater was a 1985 Corolla I owned from the age of 16 to 26, bought for $400 sold for $600.
I'm not saying that it's not possible, but it's not good life advice for the majority of people. You're an enthusiast who knows what they're doing around a car. You seem to spend a lot of time fixing things that go beyond normal garage shop fixes. Rebuilding a transmission requires time, skill, space, and most importantly tools. Two more things, not everyone is going to have the storage space for a parts car like you're suggesting. In fact, lots of American towns have ordinances against sitting cars. And second, I don't trust people to change their tires at the right time. Half the accidents during the first couple of freezes are from people that are essentially driving on belts. Do you really think I should trust people to properly seat their own used tires?
I'm glad that you are able to make this work for you, but it sounds like you have the requisite knowledge, tools, skill, and time to make it work.
Lol. You're buying bad cars.
Okay, and your average person doesn't have the knowledge to buy 'good' cars. Google can only take you so far, and RNG will still fuck a significant number of people even with knowledge. If your system requires people to have fairly in-depth knowledge in a field they don't work in just to not get absolutely fucked, then your system is shit.
Your failures are your own.
when the transmission goes or the engine throws a cylinder?
You take the paperwork out, take the license plate off, and wave good bye to the car with "well car, I guess you are the local government's problem now".
Because the VIN is super difficult to match up with DMV records.
And? The penalty for abandoning a car is they haul it away.
You give shitty advice. They can and absolutely will fine you for the price to tow the vehicle and potentially extra fees and fines for as long as the vehicle sits in the towing company's lot.
Stuff that never happens for $100 Alex. I have done it multiple times.
Congratulations on littering your shitty cars around your city. Do you just go to friends houses and leave a fat shit in the toilet for them to clean up too?
If you were my "friend" I probably would.
How exactly would an engine "throw a cylinder"?
Typically it’s a rod but you’ve either never heard the term before or are being pedantic.
Or I'm literally just asking a question to gain some insight. I've heard the term thrown a rod, and I've actually worked on cars more than most people. But thanks for the unwarranted hostility.
Easy killer “how exactly would a car throw a piston” wasn’t exactly a non-hostile comment yourself.
some engines have cylinder sleeves that can be pushed out. Although, as another commenter already mentioned, they actually meant "throwing a rod"
Yep, a properly maintained car can last you a long time. Thankfully used car prices in my country that are outside of the top 3 brands have very reasonable prices. My last car lasted me 18 years before we couldn't use it anymore due to emission regulations.
The best option is to ditch the car entirely.. buy an ebike instead for the price of 1 car payment, or move to an area with ample sidewalks/mass transit..
Definitely a big task, but is certainly more viable than buying a car with cash… (it most certainly was for me at least..)
Not all of us are 23 years old, work from home, and live in hipster city. I love these alternative forms of transportation, I have a moped when I was a single and decent bicycle. It just wouldn't be practical for me to deal with highways and picking up my kids from aftercare on an ebike.
The best option for single digdet percentage of the population
Ftfy
Lol I live 20 miles from town down a road that has no sidewalk and a 60mph speed limit because that is all I can afford to buy.
I would be dead within a week.
Mathematically it was much better to buy with a loan at a low rate. You're paying less each month on a 2% APR loan when inflation is at 4-8% like it has been the past year.
Inflation doesn't help you on a loan unless you are actually getting Inflation level raises, otherwise you have the same amount of dollars and everything else is more expensive. Also mathematically cars go down in value, so you are paying interest on money that you lost, making that loss greater.
That's the whole reason this crisis exists, because Cara with 30k are being repossessed on loans with 40k in principal left.
It does help when you're comparing it to someone with a big pile of cash to buy outright versus buying with a low interest loan. That cash can be invested and give you great returns while the cost of your loan goes down with inflation.
Even high yield savings accounts are giving ~4% interest right now with zero risk meaning someone with a 2% loan would be earning 2% interest on that cash and driving a new car while the person who bought outright is earning 0% interest while driving the same new car.
To further demonstrate the point using an extreme example, imagine you bought a brand new car 40 years ago for an MSRP of $5,000 with a 50 year low interest loan. You'd currently be paying that $5,000 loan using 2023 dollars which are worth 209% more than they were in 1983 while the loan is fixed at 2% (or whatever). That $5,000 cash you had in 1983 is now $15,000 in your bank account while you still get the benefit of driving the car over all that time.
No, remortgage your property at super low interest rate below inflation and then buy with the cash you got. This way you're saving crap loads of money.
That's even worse. Now you have your house on the line for a depreciating asset. It's the depreciation that makes financing cars such a bad deal.
Only if you want to sell your house in a few years. If not, it's a money printing machine.