I recall when I was just getting into the real world, in the late 90's, wrapping up college. A new truck was $25-30K. It was a lot of money. I bought a 2003 Ram QC 2500 4x4 with 10K miles on it for $23k. It took years to pay off. I still have the truck, and now also a 2013 base model Wrangler that cost $25k and is a little more than half paid off.
For a single guy, I make good money, $80k-ish, depending on how motivated toward overtime I am. I can't fathom the $600-700+/mo payments I hear about people making nowadays. These are people who sometimes earn less than me, with families to support also, etc.
How do they afford it?!?
(And what are they getting? A bunch of plastic. A new Suburban doesn't even come with acceptable bumpers, just a plastic sedan fascia on each end. Gak! For $60,000 I'd want chrome steel bumpers. But enough of that, back on topic.)
At any rate, I've noticed that a lot of people are getting longer and more outrageous loan terms. The newest trend is the 97 month car loan..!!! Can a 20 year old kid, who's only been a sentient being for 240 months total, really comprehend a 97 month loan?
The way a car depreciates, it may be 70-80 months before the buyer gets any equity.
Given that the average millenial can't identify a spark plug, let alone change one, these cars will be in need of repairs before they are paid off. Who's going to pay to fix a broken down car that is still being financed?
To make matters worse, the millennial generation was nursed on the teet of inaccountability. So let's invent a 97 month car loan?? Most marriages don't last that long!
I UNDERSTAND WHY the automotive and banking industries are doing this. They want to put drivers into cars they can't truly afford, for profit... and reap the loan interest for the better part of a decade.
But that's assuming the buyers hold their end of the contract...
In light of this, am I wrong to speculate that an auto "bubble" is being created, similar to the housing market a decade ago?
What happens when 100s of thousands of people decide to quit paying on 4 year old vehicles that still have a $35,000 principal balance and an actual value of significantly less?
Gonna repo them all?
Who's gonna buy those repos when all the buyers already have a repo on their credit report, or are already tied into a nasty loan?
The value of the cars will plummet. The banks will be "victimized" again... And need a bail out, again...
How big of an economic crisis would develop?
Hmmm...
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New vehicle prices, payments... Auto bubble looming?
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