Barron's: Car Repos Are Exploding. That’s a Bad Omen.
- Thread starter Wubby
- Start date
Fucking hell. My wife and I both have 2019 models and our car payments together are appreciably under $1K.
My dad has a $1000/mo payment for a Mazda lol. He was incredibly dumb and made a foolish trade in for a his newer Mazda with every option and had dog shit credit. I tried to stop him but he's too stubborn. Fuck the dealerships for putting people into loans like that, that's the biggest similarity to 2008, brokers were saddling people with loans they never should be qualified to get for their own personal gain.
Glad I never had any aspirations with regards to owning expensive or new cars. This would've been the worst time for that.
For the longest time I lived without a car but last year, at age 38, I finally got one. However, I just need something that works, is versatile and does't look too shitty. Thus, I bought off a used Ford Focus Turnier from a colleague for 5k euros in cash. I think it might be worth more now as well. lol
I really couldn't imagine paying these crazy monthly rates for a car.
For the longest time I lived without a car but last year, at age 38, I finally got one. However, I just need something that works, is versatile and does't look too shitty. Thus, I bought off a used Ford Focus Turnier from a colleague for 5k euros in cash. I think it might be worth more now as well. lol
I really couldn't imagine paying these crazy monthly rates for a car.
Because insurance is primarily for dealing with damage done to other cars, not your own, so it goes up as other car values go up.
who the fuck pays $1000/month on a car.
My gf is giving me a hard time for buying a brand new mazda mx-5 and I only pay $600 a month. My other car is paid for and we don't have rent.
My gf is giving me a hard time for buying a brand new mazda mx-5 and I only pay $600 a month. My other car is paid for and we don't have rent.
I do not disagree at all that $800+/month on a car is crazy expensive and shouldn't be dared by the vast majority of households. I also strongly believe there are a LOT more affordable options out there to keep a payment under half that.
However, I do think sometimes people forget how easy it is for a payment to be that high. $800 a month =/= hyper luxury vehicle.
A RAV4 Limited is about $37K before any potential dealer markups. Let's assume you avoid those, but wrap your ~8% sales tax into the cost. That' s just shy of $40K. Let's say you have a trade-in or a down payment of $5K.
So, you're being reasonably smart:
Putting more than 10% down
on a reliable, small Toyota crossover
with great gas mileage
and you've splurged on a higher trim
and you have great credit!
60 months at 5% interest is $660 a month, just like that.
Again - you can get a much more affordable RAV4. Downsize to a Camry or Corolla. You could maybe find something used. There are lots of ways to make it more affordable.
But a $650+/month payment is easy to hit with excellent credit and moderate money down on a "smart" vehicle. So if you want a truck or bigger SUV - even one that isn't that "nice" or "luxurious" it's gonna cost $800/month.
Put another way: You know those 1 BAJILLION GMC Yukons you saw on your way to work today? That pedestrian as all heck GM SUV that litters the roads? Payment on one of those when financed is about $1,500/month. A Denali, an Escalade, or any 3-row BMW, Merc, or Audi SUV is going to cost considerably more.
However, I do think sometimes people forget how easy it is for a payment to be that high. $800 a month =/= hyper luxury vehicle.
A RAV4 Limited is about $37K before any potential dealer markups. Let's assume you avoid those, but wrap your ~8% sales tax into the cost. That' s just shy of $40K. Let's say you have a trade-in or a down payment of $5K.
So, you're being reasonably smart:
Putting more than 10% down
on a reliable, small Toyota crossover
with great gas mileage
and you've splurged on a higher trim
and you have great credit!
60 months at 5% interest is $660 a month, just like that.
Again - you can get a much more affordable RAV4. Downsize to a Camry or Corolla. You could maybe find something used. There are lots of ways to make it more affordable.
But a $650+/month payment is easy to hit with excellent credit and moderate money down on a "smart" vehicle. So if you want a truck or bigger SUV - even one that isn't that "nice" or "luxurious" it's gonna cost $800/month.
Put another way: You know those 1 BAJILLION GMC Yukons you saw on your way to work today? That pedestrian as all heck GM SUV that litters the roads? Payment on one of those when financed is about $1,500/month. A Denali, an Escalade, or any 3-row BMW, Merc, or Audi SUV is going to cost considerably more.
If you live in phoenix this anecdotally makes sense
I see way too make 60k+ new pickups on the road considering gas prices and phoenix is a fucking metro
I see way too make 60k+ new pickups on the road considering gas prices and phoenix is a fucking metro
I love owning my car. I love that it has been so reliable I've had it for 13 years and can't even foresee when I might need to replace it (so far it's going strong). And yeah, I've always outright bought my cars, no loans here.
Actually, one of our car's history was that it was a repo. Then it got totaled by teh second owner (because cars total easily. It's a perfectly good car) who restored it himself but now has a rebuilt title. And we bought it cheap as a car for pets/carrying large loads/snow (it's an audi station wagon). For our "beater" car it's really nice (leather seats, lots of luxury features, good amount of power). And... since it's old (like my car), easier to work on ourselves than pay a mechanic.
Actually, one of our car's history was that it was a repo. Then it got totaled by teh second owner (because cars total easily. It's a perfectly good car) who restored it himself but now has a rebuilt title. And we bought it cheap as a car for pets/carrying large loads/snow (it's an audi station wagon). For our "beater" car it's really nice (leather seats, lots of luxury features, good amount of power). And... since it's old (like my car), easier to work on ourselves than pay a mechanic.
Out of interest, I looked this up in the UK, assuming that $20k is equivalent to about £17k (it's actually about £16,700).
I set a series of filters to narrow it down to only cars someone would actually want if they were buying a new primary vehicle:
- 2019 model year or newer (i.e. it probably has CarPlay / Android Auto, air conditioning, and some balance of warranty remaining).
- 20,000 miles or less (i.e. it hasn't been over-run in its lifespan)
- Automatic (less of a big deal in the UK, but probably a key criterion for US buyers)
Do I personally want any of those cars? Not really. But there's plenty in the list that I'd drive if I needed a car and didn't want to spend a ton - especially that Mazda.
It's worth pointing out, though, that if I wasn't buying with cash, and I needed to apply for finance, even that Mazda 3 is going to cost me £400 a month over four years (assuming I wanted to own it outright at the end). That's nearly $500 a month already, for a car that most Americans would say is far too small for their needs. If you want a "proper" SUV, you're going to need to add $200 a month, at least, on top of that.
Like a lot of things, if you have the cash sitting around to buy something outright, it might be inconveniently marked up from its "real" pre-pandemic value, but not horrendously so - at least on this side of the Atlantic. If you're having to borrow money to buy it? You're getting stung twice.
And if you buy with your heart, rather than your head, you're getting stung three times.
A lot of those auctions are also exclusive to dealers.
Yep, playing with Toyota's build options on the lower trims you can easily push to or get close to $40,000 MSRP+Taxes on a RAV4 if you add options, like the XLE, after Michigan taxes is just under $38K out the door. If you get the non-Hybrid and/or basic model you have a good bit more room but good luck finding one because Toyota is focusing more on the higher trims plus options with their larger margins. Never mind all the accessories dealerships will try to add and what you'll have to deal with in the finance office as they try to push thousands in extended warranties and other crap on it.
I do think this is the problem that a lot of people fall for. $40k is still $40k even if its a sensible car. Especially when the Rav4 starts at $27k. Maybe people give in too easily to move up a trim because the car payments aren't that much more, then before you know it you're paying a large amount every month.
I'm sure part of it is dealers not stocking enough lower trim models, and instead focusing more on optioned out models where they can get more profit. You go looking for a base model Rav4 and you'd probably be unlikely to find one sitting on a lot.
Why doesn't everyone just follow the 1/10th rule when buying a car: https://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/
"The #1 car buying rule to follow is my 1/10th Rule for car buying. The rule states that you should spend no more than 1/10th your gross annual income on the purchase price of a car. The car can be new or old. It doesn't matter so long as the car costs 10% of your annual gross income or less."
"The #1 car buying rule to follow is my 1/10th Rule for car buying. The rule states that you should spend no more than 1/10th your gross annual income on the purchase price of a car. The car can be new or old. It doesn't matter so long as the car costs 10% of your annual gross income or less."
What can be done to get the costs of cars down? Is it a problem at the manufacturing level where demand is just so high that they can't keep up?
Inflation also plays a role here, depending on how old someone is. For younger people, £40k might not seem like that much to pay for a car, but I remember my dad buying a Ferrari in 1985 (and not an especially old or heavily-used one either) for about £40k.
The discrepancy between a Ferrari and a RAV4 is obviously pretty pronounced, but it ignores the fact that £40k then is equivalent to something like £100k today. Which is about what I'd expect to pay if I wanted to buy a used Ferrari now. (EDIT: I just looked, and a used Ferrari Roma is £185k, so clearly I'm way off-base!)
That sort of calculus makes older people a lot more cost-averse, regardless of how outdated our assumptions about price are. I'm not even 40 yet, but I'm already old enough that I think "modern cars are way too expensive" because of a benchmark from my childhood.
Younger people are more willing to accept that £40k RAV4, because it's all they've known. Even if, as you point out, there's a £10k cheaper trim level of the same car available if you're willing to forego some luxuries.
As an accompaniment to this - when I was a social worker (….back just after the Great Recession), I worked with a lot of folks who had terrible credit and so got fleeced by used car dealers and loan sharks. Their payments a decade ago were in the 800/month range. And for crappy used cars. I imagine with the extreme supply constriction more and more people are in this situation.
And much of the US needs a car. Cannot do anything without them as everything is 5 or more miles away. And that desperation when a car breaks down, some times, leads to these situations as well of paying more than someone should.
I pay something around 400/month, live in a city (now) with both excellent transportation for the US plus stores and general needs for life within a 15 minute walk. But I get how people have fallen into this.
If you only make say, 20K you won't have many options and the ones you do have will likely have many other issues.
This is impractical and impossible for a large swath of people. My gross income allows me less than 6k towards a car. Unless I want a beater that will cost me the same amount in the shop, this financial samurai might want to review their information.
There is a very helpful (and not out of touch in anyway) chart in the article for just that!
It's super hard to follow now days. Basically to get that RAV4 above you would need to make $400K a year. That puts you in what, top 5% in US, maybe even higher.
If everyone followed this there would be close to no new cars being bought, meaning almost no used cars, making all cars more expensive.
LOL my goodness, thanks "Financial Samurai"There is a very helpful (and not out of touch in anyway) chart in the article for just that!
There is something heinously wrong if someone making a decent salary of like 75k can only afford a $7,500 car
That seems to be guidance for cities with high cost of living.There is a very helpful (and not out of touch in anyway) chart in the article for just that!
My point is that you said used cars are going to flood the market. But used cars already flooded the market. And they are selling for more than the person bought it for. I bought my truck for $19,000 and I can sell it for $25,000 now.
For the majority of American cities the public transit, bike and walk options don't work due to sheer distance or lack of services. E-bikes and scooters are a possibility but their prices seem to be rising as well.There is a very helpful (and not out of touch in anyway) chart in the article for just that!
Edit: I believe e-bikes also have trouble due to sprawl and then not being legal on freeways iirc, or just too slow for it so seem safe.
Ok, perspective time:
I have worked in the auto sales business for about 15 years now.
Car prices for BOTH new and used have shot up like CRAZY over the last couple years. In many cases, used cars have almost DOUBLED in cost. Then there is big markups on new cars and LOW inventories.
The worst issue is so many people buy WAY too much vehicle for their needs.
These guys coming in wanting big ass trucks because they think they need it... turns out they only town about 1,000-2,000 lbs. So a smaller truck will actually do the job, but their EGO wont allow it. Or people buying 30,000 cars, and they drive less than 100 miles a week.
Even leases (which most people who buy cars SHOULD be doing) have skyrocketed.
The only time I see $1,000 loans, is people buying trucks. But loans can still be pretty big on other things.
I have worked in the auto sales business for about 15 years now.
Car prices for BOTH new and used have shot up like CRAZY over the last couple years. In many cases, used cars have almost DOUBLED in cost. Then there is big markups on new cars and LOW inventories.
The worst issue is so many people buy WAY too much vehicle for their needs.
These guys coming in wanting big ass trucks because they think they need it... turns out they only town about 1,000-2,000 lbs. So a smaller truck will actually do the job, but their EGO wont allow it. Or people buying 30,000 cars, and they drive less than 100 miles a week.
Even leases (which most people who buy cars SHOULD be doing) have skyrocketed.
The only time I see $1,000 loans, is people buying trucks. But loans can still be pretty big on other things.
Is this a joke post?
EDIT: Okay I refreshed and I see now.
Sadly enough it is from one of the most popular personal finance blogs and shows how out of touch a lot of recommendations are to real people.
Yeah, that's advice that hasn't been relevant since maybe the early 90s? Though probably more the 80s.
Possibly. I do wonder how much the income to car payment ratio has changed over the years. I wonder if its stayed close to the same or if people really are spending a larger percentage of their income on their car.
that chart is nonsense and not based in reality. Reads like the advice people give where you spend nothing in life to retire at 40. There's no reason to spend so little on a car, maybe if you're drowning in debt or something.
Do these people have 5 children or something? because I would like to see who drives a basic Golf and makes 150k.There is a very helpful (and not out of touch in anyway) chart in the article for just that!
I'm honestly considering selling my car and going e bike with how used car prices are right now. I bought a 2017 Corolla in 2019, loaned $14,000 for it, pay about $290 a month, and still owe around $10,000 -- but looking at the market, I can sell that car for ~$15,000 pretty easily - making a cool $5000. My wife has a car, and everything I need to reach is within a mile or two.
It's just wild to me that of everything I own, my car has appreciated the most. It helps that Toyotas historically keep value into high miles, but I didn't expect it to appreciate over the loan value.
It's just wild to me that of everything I own, my car has appreciated the most. It helps that Toyotas historically keep value into high miles, but I didn't expect it to appreciate over the loan value.
lol I got a good cackle out of thisThere is a very helpful (and not out of touch in anyway) chart in the article for just that!
I have a 2018 Civic Hatchback and I make wayyyy less than 100k. My payments are 330 a month.There is a very helpful (and not out of touch in anyway) chart in the article for just that!
The caveat being it was a lease that I took over and am now paying for the car outright. Still.
Used cars didn't flood the market. Simple supply and demand took over; there weren't any new cars due to supply chain issues and that ramped demand on used cars, with an added influx of free government money that people wanted to spend. That that time is about over.
Soon, a dealer will now be able to get your truck at auction for $8k and sell it for $15k. If you can still make a profit on your used car, you might want to think about selling.
Those advices alway read to me like "You are too poor. I'm better than you"
Read this article yesterday and yeah it is troubling. As someone who sold cars for a time you get to see how out of touch the average buyer is for the cost of a vehicle. a lot of people wish to be under $200-250 a month payment but those vehicles don't exist unless you have prime credit and are willing to get in Versa or 6 year old vehicle.
Those DC payments are pretty much a $30k car at a APR of 1.5% with taxes. Just so people know how much shit costs.
I'm curious what's the normal rate compared to those percentages, it's good to see what's considered the baseline in these
Where I live it's common for people to make 40k and buy $75,000 pickup trucks. And if they are married they buy two new cars. Wife can't have a newer car than husband. And then the post Facebook pics of their money pit and everyone says congratulations. And then 3-6 years later they trade those cars in and buy newer cars. Often while still owing money on them.
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god if i know but I wouldn't be surprised if some of it is subprime 15% on an $18,000 5-year-old CUV, it is very easy to get to $500. I mean a 48-month civic is probably way over $500 a month lol. Any used vehicle in the high teens to low $20k is going to get there if someone gets hit with a 7% - 9% rate.
There are only currently 10 models in the US under $20,000 new so what options do people have? we are a car-reliant country! Banks ain't trying to sell someone with a 640 credit score a $14998 2013 Mitsubishi with 84k miles
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I mean, why not lease at that point? Leases kind of suck now, but before COVID, that was the way to go if you want to drive new cars every 3 years. Of course the above is a really stupid way to handle finances but that's a diff conversation.
Or basically they are coming from people living in a place with good transport going by financial data from two decades ago (maybe 3 decades). This advice is ridiculous in 2022.