The subprime lending madness that led to the bursting of the US housing bubble in 2006 has spread through auto loans ever since. Once lending and leasing rates were cut to zero, and wage increases remained flat, dealers turned to lower lending standards, zero down and longer and longer financing terms in their efforts to keep pushing product. But all madness must eventually meet its deserved demise. We must be getting close.
Experian, which analyzes millions of auto loans, says the percentage of US car loans that were delinquent or ended up in default with the vehicle being repossessed surged 70% in the second quarter of this year. Here is a direct video link.
And as for Canada, oh sure, we folks are a lot smarter up here… See: Eight-year car loans drive sales and deepen Canadians’ debt problems
“The average term of a light-vehicle loan in Canada is 69 months, close to a peak of 72 months set in the third quarter of 2013, according to data from marketing information company J.D. Power. The borrowing adds to signs Canadians are continuing to buy big-ticket items and tuning out warnings about unsustainable debt growth.
Longer-term car loans are leaving Canadians in debt for a longer time, Dennis DesRosiers, president of DesRosiers Automotive Consultants in Richmond Hill, Ontario, said in a telephone interview. “On a 96-month loan it takes 80-plus months before you are back in the money,” he said.
…The president of the Credit Counselling Society, a non-profit consumer service, says 10 to 15% of the 30,000 people his company meets every year are receiving advice because of car loans.
While stretching the term of a zero-interest loan doesn’t add to the total borrowing cost, it delays the point where the vehicle’s worth becomes greater than the debt. Hannah also said long-duration loans can entice people into taking on more debt than they may be able to handle… “It’s not in the consumer’s best interest to take out a longer-term loan for a depreciating asset.”
“Consumer’s best interest”? When was that ever a concern of corporate owned policy makers? The most recent dealership campaigns led by Hyundai Canada are for 96-month, zero-interest loans. Next up 10 year terms? This oughta end well…
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