7 Year Loans-Even Honda Agrees They're Stupid

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http://www.bloomberg.com/news/2015-01-20...ales-gains.html

Originally Posted By: John Mendel
Extended-term loans are “stupid not just for us, but for the industry.”


I can't disagree with that.

Quote:
More than one in four new-car loans in October and November were 73 to 84 months long, according to Experian Plc. The share of new-car loans at those term lengths was less then 10 percent in 2009 and 2010.
 
Whatever it takes to make the monthly payment lower, with complete disregard for what it does to one's finances in the long run. Nuts.
 
It all depends on what the interest rate is. I'd finance for 84 months if it was at 0%
smile.gif
 
Unless the rate is 0-1% and of course, it would all depend on the circumstance and the vehicle.
 
I can't disagree either. But I think this is Honda's true worry:

Quote:
“Something has to be done to keep the market affordable, or consumer buying is going to have to change and we’ll have to return to less frequent purchases.”


Long-term loans probably discourage those under water from selling their vehicle...they end up keeping it longer...Honda sells fewer vehicles. Honda probably knows that once many consumers pay off a car, the very next month's dinner table conversation is, "okay, what am I gonna buy next?"
 
Has no one heard of a down payment? Or buying what they can afford?

We have to go car shopping this year, and though we get some nice loaded cute ute or family sedan, we're just sticking with a nice simple base Cruze or Focus. (Extra discount helps here too) I want something I can pay off within a few years.

The wife and I have better ideas, like more money in our savings account (and retirement) and family vacations
smile.gif
Like houses, too many people buy what they want and not what they need... If I want a cute ute', I'll just buy a 5-6 year old Escape.....
 
Originally Posted By: Quattro Pete
Whatever it takes to make the monthly payment lower, with complete disregard for what it does to one's finances in the long run. Nuts.



Yep.
 
Originally Posted By: dishdude
It all depends on what the interest rate is. I'd finance for 84 months if it was at 0%
smile.gif



Sounds great until you realize you'll be making payments for 7 years though....
eek.gif
 
Originally Posted By: daves87rs
Originally Posted By: dishdude
It all depends on what the interest rate is. I'd finance for 84 months if it was at 0%
smile.gif



Sounds great until you realize you'll be making payments for 7 years though....
eek.gif



I'm all about making same-as-cash-payments for 7 years rather than dropping it down all at once. Invest the $25,000 and collect dividends off of it and make your payments as you go. In the end, you'll have more left than if you paid cash up front.

Debt can be a good tool, but only if it's used intelligently.
 
Originally Posted By: Hokiefyd
I can't disagree either. But I think this is Honda's true worry:

Quote:
“Something has to be done to keep the market affordable, or consumer buying is going to have to change and we’ll have to return to less frequent purchases.”


Long-term loans probably discourage those under water from selling their vehicle...they end up keeping it longer...Honda sells fewer vehicles. Honda probably knows that once many consumers pay off a car, the very next month's dinner table conversation is, "okay, what am I gonna buy next?"


Back to the old days, high content cars were for those who could afford them not welfare cases and minimum wage earners.
My fat minimum wage nephew honestly believes his has the God given right to drive a loaded 50K car like everyone of his other minimum wage buddies.
 
Originally Posted By: daves87rs
Originally Posted By: dishdude
It all depends on what the interest rate is. I'd finance for 84 months if it was at 0%
smile.gif



Sounds great until you realize you'll be making payments for 7 years though....
eek.gif



Most people, especially the ones suckered into 7 year loans, are not thinking about this. It's just month to month, and often paycheck to paycheck. Be it because they have bad jobs that do not pay a lot, or they are just really bad with their money.

It's great for the banks!
 
Originally Posted By: Miller88
It's great for the banks!


Banks generally don't play any part in 0% loans; there is no interest on a 0% loan, by definition, so there's no money to be made. Automakers offer 0% loans through their own financial institutions to drive sales. Banks are really not involved here.
 
Originally Posted By: Hokiefyd
Originally Posted By: daves87rs
Originally Posted By: dishdude
It all depends on what the interest rate is. I'd finance for 84 months if it was at 0%
smile.gif



Sounds great until you realize you'll be making payments for 7 years though....
eek.gif



I'm all about making same-as-cash-payments for 7 years rather than dropping it down all at once. Invest the $25,000 and collect dividends off of it and make your payments as you go. In the end, you'll have more left than if you paid cash up front.

Debt can be a good tool, but only if it's used intelligently.


True, But I'd still rather get the cheaper car though...
smile.gif
 
Originally Posted By: daves87rs
True, But I'd still rather get the cheaper car though...
smile.gif



Sure, but a separate topic completely (cost of car vs. cost of financing). I'm never a proponent of paying any significant amount of interest for any duration, but especially for 84 months. But 0% interest *can* change the discussion entirely.

I've paid cash for a new car once, and I'll never make that mistake again. It was a lemon to begin with, so that really soured us on it, no pun intended, but the opportunity we lost to have invested that money and let it work for us (instead of having it proverbially rust in the driveway) is not an opportunity I will lose again.
 
Originally Posted By: Hokiefyd
Originally Posted By: daves87rs
Originally Posted By: dishdude
It all depends on what the interest rate is. I'd finance for 84 months if it was at 0%
smile.gif



Sounds great until you realize you'll be making payments for 7 years though....
eek.gif



I'm all about making same-as-cash-payments for 7 years rather than dropping it down all at once. Invest the $25,000 and collect dividends off of it and make your payments as you go. In the end, you'll have more left than if you paid cash up front.

Debt can be a good tool, but only if it's used intelligently.



Brave words around here. I made the same point here several times and got blasted.
Absolutely true though. Excellent way to leverage your resources for a good return.
Some people have financial discipline and impulse control.
 
Originally Posted By: Hokiefyd
I'm all about making same-as-cash-payments for 7 years rather than dropping it down all at once. Invest the $25,000 and collect dividends off of it and make your payments as you go. In the end, you'll have more left than if you paid cash up front.

Debt can be a good tool, but only if it's used intelligently.


Ah-the myth of 0% financing. I would assume you'd know that when 0% financing is offered, the price of the vehicle is usually inflated to make up for the finance charges or rebates don't apply.

You didn't really think that someone was going to let you use their money for 7 years with no return on their investment-did you?

Originally Posted By: Hokiefyd
Debtors can be good tools, but only if they're used intelligently.


There. I corrected that statement for you.
 
I put a big chunk down....get a 6 or 7 year payment plan....then pay off in about half the time.

I like the idea that should anything financially devastating happen to my household income, making a tiny car payment would not be an issue.
 
You might get some loan officer who says; "The smart money is financing cars as long as they can to free up assets for investing". Ive heard that line of malarkey before. A question I have is, of all those who would fiancee a vehicle for such a long time; How many actually invest the 'freed up' assets?
 
Originally Posted By: Hokiefyd
Originally Posted By: Miller88
It's great for the banks!


Banks generally don't play any part in 0% loans; there is no interest on a 0% loan, by definition, so there's no money to be made. Automakers offer 0% loans through their own financial institutions to drive sales. Banks are really not involved here.


I can't imagine they are doing 7 year loans with 0% interest. Honda's finance division is making a killing on 7 year loans.
 
Originally Posted By: Miller88
I can't imagine they are doing 7 year loans with 0% interest. Honda's finance division is making a killing on 7 year loans.
They may--Ford has done it on 72 month loans for at least 4 years now starting in 2010.
 
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