Today’s news contains interesting factoids about Used Car Financing, and a survey about Auto Loan Financing,
National Car Sales: Loan interest rates on the rise for those with poor credit
Car salesmen call it “the payment walk,” when a customer wants a new vehicle but is walked instead to the used lot because they can’t qualify for a new-car loan.
With the Federal Reserve seemingly bent on more interest-rate hikes, it’s almost certain that more people will be taking that stroll.
The Fed raised rates a quarter percent in December, the third rate hike of 2017, and it’s broadcasting three more this year.
For would-be buyers with stellar credit, the impact hasn’t been substantial. But many with subprime credit scores of around 600 or below are now settling for cars that already have some miles on them, says Jonathan Smoke, chief economist for Cox Automotive.
Subprime buyers got substantially better rates even a year ago. The average subprime rate of 5.91% last year has jumped to 16.84% today, Smoke says. For a 60-month loan of $20,000, that means a monthly payment hike of more than $100, to $495.
Our take: It’s impractical ANYWAYS to buy a NEW vehicle. Why? Because as we have said for decades, a NEW car is a depreciating asset. You can buy new, sure… but we at Auto Maxx in Dover Delaware promote sound financial practices. Let’s look at it this way… would you buy a new house if, right after the paperwork is done the minute you walk out of the mortgage office, that property has lost half it’s value?
No, you likely wouldn’t. That right there is exactly what happens with a new vehicle. So to make the practical decision, do your due diligence on how to buy a well maintained vehicle with maintenance records proving the car has been well maintained. Market forces in the used car industry have made this very possible, and cheaper. We tell all our customers to use Carfax.com. We do the very same.
As to the rise in Sub Prime, there are still options out there. With any application for credit we get, we
Are Auto Loans Confusing To Americans? A New Survey Says Yes
Some of the more surprising survey results include:
- 79% were approved for the auto loan they applied for
- 52% can’t name the 3 major credit bureaus
- An overwhelming majority (94%) weren’t aware auto lenders often use a specialty credit score, called an Auto FICO, when evaluating auto loan borrowers
- 61% think lenders consider age and marital status when evaluating loan applicants
- Nearly 3 in 5 (59.9%) don’t understand the relationship between loan term and interest.
- More than 2 in 5 (42.6%) don’t know what it means to be “upside down” or “underwater” on your loan
- More than 3 in 5 (62.1%) don’t know what gap insurance is
Since the survey results indicate some people aren’t clear about auto financing fundamentals
We can validate this survey, our Dover and surrounding area customers and would-be customers usually do come to our used cars in Dover DE dealership with many of these same questions. That’s why we are putting together a Practical guide for the Used Car Buyer. It goes over a lot of these terms, as well as explaining to you how to be a smart shopper for a used car, based on our 44 years of hands on experience in the used car industry.