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Thread: weekend commentary - somebody finally noticed Auto Loans are going belly-up too !

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    Default weekend commentary - somebody finally noticed Auto Loans are going belly-up too !

    this should make for some tremendous deals on used cars by the end of next year ... as long as you have CASH to buy one !



    (snip)" Auto Loan Delinquencies Spike

    It will be probably harder and more expensive to get an installment auto loan in 2008

    By Brendan Moore

    12.06.2007

    According to an article in The Wall Street Journal this morning, auto loans in the United States are starting to feel the effects of the slowing economy, with late pays and delinquencies at their highest levels in many years.

    Such a development not only means trouble for the auto lenders now, but as those lenders take unplanned losses in their auto loan portfolios, the consequence for borrowers will be tighter credit regarding auto loans in the future. And tighter credit from an asset lender’s perspective is not simply a matter of requiring a better credit bureau score; it also covers the inevitable heightened requirements for the down payment and a higher interest rate on the loan in order to better cover the increase risk in the lending sector.

    If an average consumer must now have a better credit score, put down a bigger down payment, and make a larger monthly payment in order to get an installment auto loan, it stands to reason that there will be less auto loans next year. If the U.S. wobbles into an economic recession, then auto loan volumes will be reduced further as a result of the poor overall economy.

    The NAFA (National Auto Finance Association) says approximately $575 billion USD in auto loans are made every year. Any reduction in that number would hurt both the lenders and the retail auto dealers, which depend on the income from their loan-origination activities (the F&I department) at the dealership to make a profit.

    There is also another lending factor that may reduce vehicle sales next year. The troubles in the mortgage and home-equity sectors mean that the number of people who were getting a home-equity loan in order to buy a car (and get a tax deduction in the bargain – what could be better, right?) will now shrink to almost nothing. No one has ever been able to calculate just how often this was happening, and in fact, the guessed-at frequency was the matter of some speculation in the auto lending and home-equity lending arenas, but there is no doubt that it occurred at some level."(snip)

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    Default Re: weekend commentary - somebody finally noticed Auto Loans are going belly-up too !

    Makes sense since so many people buy cars they really can't afford and never pay them off and just keep trading them in.

    Sucks though, since I was just looking at buying a new car. Hopefully I can get a loan.

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    Banned Melonie's Avatar
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    Default Re: weekend commentary - somebody finally noticed Auto Loans are going belly-up too !

    ^^^ oh, you'll still be able to get a loan. The question will be how much cash will you be expected to put down, and how high of an interest rate will you be expected to pay.

    These days, lenders want to see at least 20% 'overall' equity ... which means the net of the new car's value, the traded in car's value, and the outstanding balance of whatever loan remains on the traded in car. This area is where a lot of people have gotten in trouble i.e. with a 5 year car loan and depreciation being what it is, the outstanding balance of their existing car loan may be several thousand dollars 'underwater'. Thus in order to be approved for a new car loan under anything near favorable terms, they will need to come up with several thousand dollars in cash to pay off their existing car loan, plus another several thousand dollars in cash to pay 20% of the value of the new car they want to buy (less actual market value of their trade-in) in down payment, plus additional cash to pay license and insurance costs.

    Rolling over existing loans into new loans with zero 'overall' equity just isn't happening anymore. If the buyer wants zero 'overall' equity financing these days, it's called a lease ... where 'repossession' is built right into the contract !

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