Lengthy Vehicle Loans
Lengthy Vehicle Loans
Cleveland Scrap Cars, an Ohio-based buyer of scrap cars, is back with a somewhat unrelated topic to the damaged vehicle removal or ‘selling a junk car’ news we typically report on. Another possible bubble is arising in the US as lenders continue to generate loans with a longer duration. In efforts to keep the buyer’s monthly payments low, they are extending the length (or term) of the loan further than what anyone with much common sense would think is logical.
On June 28, 2015 the site buffalonews.com posted a story titled ‘Longer loans for subprime car buyers in U.S. stoke debt concern’ with the following details: “Demand for automobile debt in the U.S. is enabling lenders to make longer loans to people with spotty credit. Of the subprime loans, 73 % now exceed 5 years, up from 64% during the 1st three months of 2014, according to data from Citigroup Inc. Loans as long as 7 years are being put into more bonds as auto-finance companies & Wall Street banks sell the securities.
The longer loans make it easier for consumers to afford rising car prices by spreading out and lowering payments. The securities are attracting buyers with high loss buffers & AAA ratings, some investors are beginning to question the wisdom of lending at terms beyond 5 years.
A debt offering recently marketed by ACA demonstrates the risks: About 1/3 of the loans in the are tied to borrowers with credit under 500 according to the Fair Issac Corp. grading system known as FICO – according to a prospectus. The interest rates are 27-28% 28 percent for almost 1/3 of the borrowers, and more than 1/2 of its loans exceed 5 years.
While cars are lasting longer than in the past, the value of the vehicles may fall faster than borrowers can pay off the debt. Last month, the average price for a new car reached $33,363, up from $32,000 a year earlier, according to figures from KBB. Used car prices hit a record of $16,800 in 2014, according to a report from Edmunds.com.” The complete story is available here: http://www.buffalonews.com/
This is typical American economic manipulation at work again, similar to the housing crisis a few years ago. Let’s consider an example: Today, a buyer purchases a 2014 (late-model) used vehicle with 12,000 miles on it for $18,000 with a loan of 5.5 years (66 months). Four years from now (2019) the vehicle is 5 years old and has averaged 15K miles, so it has 72K mileage and the transmission falters. So the vehicle owner is facing a $2,000 repair bill and still owes over $5,000 on the remaining loan balance. The owner had poor to fair credit to begin with and is living paycheck to paycheck like most Americans. (Sources: CNN: 76%; Time: 56%; CNBC: 62%) How do you think this story will end?
Cleveland Scrap Cars is where to scrap a car in Parma, Lakewood or Macedonia. CSC is a buyer of scrap cars; therefore, if selling a junk car and want fast damaged vehicle removal, call 216-282-5865 today. To scrap a car in Parma, Brook Park or Tremont, you simple need to call for a quote on your old car, which includes a car that is wrecked or needs damaged vehicle removal. Are you thinking of selling a junk car? Call the buyer of scrap cars that offers same-day wrecked, non-running and damaged vehicle removal. Are you seeking to scrap a car in Parma, Seven Hills or Brecksville? We simply need your title and an ID to scrap your car for cash. We are able to pick up your junk vehicle 6 days per week. Same-day cash for cars service is usually available if you call before 2PM. Next-day pickup of scrap cars in always available throughout the (216) and the (440) area codes.