Here's yet another horrible auto loan

"LJ909" (lj909) 11/27/2017 at 14:47 • Filed to: None

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The more I see these bad loans on peoples credit the more concerned I get. I got another here for you guys today. A couple with a cosigned Honda Accord they got earlier this year. I’m assuming it was a top trim Accord EX-L or Touring. They financed it for $31,300 for 73 months at, wait for it, $881 a month. Whats more insane is that they got the car in February. When we ran their credit this past Wednesday, the balance on it had increased to $31,900. Digging themselves deeper.

Highlander-Datsuns are Forever > LJ909 11/27/2017 at 14:53

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When I didn’t have money, I just bought inexpensive but reliable cars, why is this idea so hard for some to grasp?

AM3R, lost another burner > LJ909 11/27/2017 at 14:53

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Holy shit that is terrible

LJ909 > Highlander-Datsuns are Forever 11/27/2017 at 14:54

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Because a lot of people go for show. They’d rather be broke and driving around in a nice car they cant afford, then letting people see them drive around in the crappy car they should be in financially.

ateamfan42 > LJ909 11/27/2017 at 14:56

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They financed it for $31,300 for 73 months at, wait for it, $881 a month.

Now we all know public schools don’t teach finance courses, but last I checked they still included basic arithmetic in the curriculum. $881 x 73 = $63,313. That’s a LOT of scratch for a basic sedan.

When we ran their credit this past Wednesday, the balance on it had increased to $31,900. Digging themselves deeper.

How is this even possible? Can the interest rate be so large that the balance increases faster than the payments reduce it?

Old Red Wagon > LJ909 11/27/2017 at 14:56

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Geez, I would love to know what goes through someone’s head for them to do something like this.

HammerheadFistpunch > LJ909 11/27/2017 at 14:58

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Thats $63432. For an accord.

e36Jeff now drives a ZHP > LJ909 11/27/2017 at 14:58

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Sweet mother of god, they are going to end up paying $64.3k on an Accord

That’s so absurd I had to break out an interrobang.

Back of the napkin math says it’s a 27.2% APR on the car loan, assuming nothing down and no trade-in. That’s a shitty credit card rate, much less a horrifying car loan rate.

LJ909 > ateamfan42 11/27/2017 at 14:59

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Im thinking that the APR is indeed high for it to increase $600 bucks in 9 months, especially with them having made payments on it. But schools teach basic math, but people dont do it. They just sign. Excited by the prospect of a new car and pushed by sales people that pray you dont actually look at what you’re getting into.

Mergio Sarchionne > LJ909 11/27/2017 at 14:59

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God... $63,313? Why couldn’t they have been interested in a 300

LJ909 > Old Red Wagon 11/27/2017 at 14:59

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Nothing. Because if they had any sense, they would have realized they are going to pay nearly $64 grand for an Accord.

LJ909 > HammerheadFistpunch 11/27/2017 at 15:00

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Its basic math that they didnt do. Now they are stuck. And I dont feel sorry for them.

LJ909 > e36Jeff now drives a ZHP 11/27/2017 at 15:01

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If you had seen the rest of their credit, this line of bad financial decisions isnt out of line for them.

LJ909 > Mergio Sarchionne 11/27/2017 at 15:02

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Because getting finance with Chrysler Financial would have made them get an even shitter loan.

itschrome > LJ909 11/27/2017 at 15:04

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jesus. whats the interest rate for this? how is it even legal to give a loan like this? also what kind of dumbass takes a loan like this?

e36Jeff now drives a ZHP > LJ909 11/27/2017 at 15:06

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That is a level of financial failure that is mind-blowing. I’d hate to see what they’d sign up for mortgage-wise. Were you at least able to tell them to go see a financial planner or something of the like?

And my wife thinks I’m bad with money because I had $6k in CC debt. I at least knew how much I was paying and was actively managing it to keep the APR low while paying it down.

Supreme Chancellor and Glorious Leader SaveTheIntegras > LJ909 11/27/2017 at 15:07

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People never fail to amaze me

LJ909 > itschrome 11/27/2017 at 15:09

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It has to be over 15%. The sad part is that there are many dumbasses like them that pretty much accepted the shovel from the dealer to dig themselves a hole.

itschrome > LJ909 11/27/2017 at 15:13

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yeah not only would they have a bad rate but it would be for a 300! which they would still owe on after it’s been dead in the driveway for 6 months. haha

LJ909 > e36Jeff now drives a ZHP 11/27/2017 at 15:16

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Sometimes I wish I could give financial advice but I cant. But then I think that even if I did it wouldnt help. A lot of these people have histories of questionable financial decision. And being grown ass adults, they should have known what they were getting into you know? You cant really feel sorry for people that do things like this. Habitual debtors I call them.

$6 grand in CC debt is pennies from what Ive seen. At least you’re on top of it like you said. Ive seen tax leins on people that equate out to most peoples yearly salaries. So just think, it could be way worse.

BahamaTodd > LJ909 11/27/2017 at 15:30

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I thought it was bad enough that many people only look at the monthly payment instead of the total cost. In this case it doesn’t look like they looked at any of the numbers.

Quadradeuce > LJ909 11/27/2017 at 15:44

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I’m at a total loss for words. This literally depresses me.

SilentButNotReallyDeadly...killed by G/O Media > LJ909 11/27/2017 at 15:45

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Question from a non American...what’s the price of failure when they default on that?

In Oz, they’d be declared bankrupt, have many of their assets liquidated to pay the bills, potentially be forced into a repayment plan if there was still outstanding monies and be pretty much cut off from a line of credit for up to 10 years. Or at least something like that...

LJ909 > BahamaTodd 11/27/2017 at 15:46

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They didnt at all. No one in their right mind would have signed knowing the total. I always tell people the monthly matters, but look at the total cost as well. People are usually worried about the down.

Jarrett - [BRZ Boi] > LJ909 11/27/2017 at 15:48

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When I walk down the street and see 50 grand worth of cars in a driveway, I wonder what I need to do to afford it.

Then I see stories like this and realize that many people can’t afford it, and I’m doing very very well by having 3 paid-for vehicles, even if they aren’t worth oodles of money.

ZHP Sparky, the 5th > LJ909 11/27/2017 at 16:01

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At this point how is this any better than a lease? Sure, some folks might think yeah I’m paying more, but at least I OWN something at the end of it! There will be value in the car! In this case – uhm, sure…73 months later you will OWN a 7 year old Accord. Cool story, bro!

Even if you want a brand new car to keep up with the Joneses, go lease a Hyundai for $250 a month and I promise none of your neighbors will know the difference, and you’d still have an equally new, well equipped, and warrantied car to drive around in.

WilliamsSW > LJ909 11/27/2017 at 16:01

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What I don’t quite understand is how a finance manager worked up the guts to offer them that payment plan.

I’ve bought and leased plenty of cars in the last 25+ years, and do a lot of cross-shopping when I do. No one has ever tried to pull anything that egregious on me.

I feel like there has to be some discrimination going on here...

LJ909 > SilentButNotReallyDeadly...killed by G/O Media 11/27/2017 at 16:02

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Here in the US, declaring Bankruptcy is a whole separate ordeal. A car loan can go a couple of different ways. 2 mainly are an unpaid balance charge off or they can dispute the trade on their credit.

In an unpaid balance charge off, say they were paying on it and paid it down to about $25 grand. Something happened, loss of work or some other financially changing thing. They stopped paying on the car because they cant. The creditor takes a hit because they aren’t making their money back so they charge off the debt and the consumer takes the credit hit with them showing they still owe the total balance of whatever they paid it down too. This happens a lot and is one of the things I see often on peoples credit.

A dispute is just that, a dispute and I had when people do this. Its literally the consumer saying “I don’t recall taking out this loan so I don’t think I should pay it” or they don’t agree with the amount that is showing they owe. It shows on their credit as its being disputed by consumer. Both take big hits out of your credit score.

LJ909 > Jarrett - [BRZ Boi] 11/27/2017 at 16:03

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Most people cant afford the cars they are driving around. You are honestly in better shape having 3 paid off cars than say, my neighbor down the street that has both a Yukon XL Denali and a Sierra Denali in their driveway. Most people dont realize this fact.

LJ909 > ZHP Sparky, the 5th 11/27/2017 at 16:06

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Because keeping up with the Jonses is always about appearances. Leasing a Elantra for $250 a month may be a smart decision, but you’re average American couple thats all for show wont be seen as having made it in an econobox. Thats why they scrape together a few grand for a down on a car they know they shouldn’t be in for appearances sake. Its sad the lengths so many go to because of pride and wanting to show.

LJ909 > WilliamsSW 11/27/2017 at 16:09

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There could very well be some discrimination going on here. But from my own personal experience as both selling cars and being a in the know customer, finance managers are most often snakes. I mean when I sold cars I’ve had deals, for sure done deals, thrown out because some finance manger saw he couldn’t scrape a few more hundred bucks out of the customers for his commission on the deal. In a perfect world, a finance manager would try to get the customer the best deal from the bank. But commission taints customer service in car sales and then you end up with shit like this. Finance manager and customer both share the blame.

SilentButNotReallyDeadly...killed by G/O Media > LJ909 11/27/2017 at 16:17

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OK but that implies that the biggest hit is to your credit score which is (as I understand it) your capacity to secure credit. Not necessarily to your actual hip pocket?

Excuse my ignorance but I haven’t had a loan for over a decade and I haven’t had a car loan for much longer than that.

The cost of unsecured credit down here is hilarious given the base interest rates - my bank offered me a ‘special deal’ recently - seven grand over three years at 15%. No...just...no.

I just did the math on a $45k loan over 7 years paid weekly at 14.69% variable...$198 per week minimum payment with $27,092 interest. FUCK NO!

WilliamsSW > LJ909 11/27/2017 at 16:18

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Yeah, I learned a long time ago that when sales kicks you over to the finance department is when the real trouble starts.

And the customer is absolutely to blame for signing up for this.

No doubt, shopping in certain areas, for certain brands, lower credit scores, etc. all make it more likely that the finance manager will try to pull this on a buyer, but I can’t help but wonder if these sleaze bags are targeting people that they think are ‘dumb’ this this kind of crap.

interstate366, now In The Industry > LJ909 11/27/2017 at 16:22

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They could have gotten a very well kept, slightly used Accord of the same generation for less than half that. And probably paid a lower interest rate. But you know, some people just have to have a car that nobody has farted in.

LJ909 > SilentButNotReallyDeadly...killed by G/O Media 11/27/2017 at 16:22

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Yea credit is everything. So that hit to your score in some ways is way more damaging than it is to you pocket from a combination of the lenght of time it stays on your credit (usually 7-10 years, though Bankruptcy can clear all of it out) and the fact that it can keep you from getting anything else with your credit.

No ignorance here though. You are asking the questions that these people should be asking to avoid the exact situation I talked about. If you were here in the States you could get a much lower rate. I just saw someone with a $10,000 loan at 5% for $189 a month. Credit unions give excellent rates.

RPM esq. > itschrome 11/27/2017 at 16:23

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Over 20%, if my mental math is right. In some states that’s usury, and in the ones it isn’t something about this transaction SHOULD violate federal truth-in-lending or predatory lending laws.

LJ909 > WilliamsSW 11/27/2017 at 16:30

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They absolutely target. And usually the target is a specific ethnic group, mainly Black and Brown people. Here in Southern California there are a ton of these dealers that do this. Buy here pay here places that stock balling on a budget models that a popular with the bad credit crowd like older (5-7 years) Mercedes, Chargers/Challengers etc. They almost always have high miles and have shitty 30-90 day, 5 thousand mile warranties.

They get these people into long loan terms and then to make matters worse, thing selling point around here as of late is giving you 5-6 months to pay your down payment. So on top of having to pay your car not (if you are approved) you have to scrape together extra money to give them for your down.

How an alarm doesn’t go off in peoples heads that if you need 5 months to pay your down payment that you for sure cant afford a car to begin with doesn’t make sense to me. But yea these dealers most definitely target certain people and they know exactly how to do it.

Klaus Schmoll > SilentButNotReallyDeadly...killed by G/O Media 11/27/2017 at 16:31

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In Germany you can declare personal bankruptcy, meaning that your assets (usually non-existent at this point) will be seized, and that you will have to agree to a realistic payment plan. Small apartment, public transport, bread on the table, mones for utilities but no more. You have to do your best to pay down your debt for up to 7 years but after that “period of well behaviour” you are free of any debt. It’ll show up on credit reports though, so people might be hesitant to lend fresh money after that.

LJ909 > interstate366, now In The Industry 11/27/2017 at 16:33

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Exactly. I can look right now on Cargurus, Autotrader or Cars.com and find 1-2 year old low mileage Accords for under $20 grand.

SilentButNotReallyDeadly...killed by G/O Media > LJ909 11/27/2017 at 16:35

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Hmmm just found another local deal at a much better 6.66% on $45k which equates to $175 weekly over 6 years for an interest bill of $9,620.

Still prefer to save the coin...but that’s far more reasonable

SilentButNotReallyDeadly...killed by G/O Media > Klaus Schmoll 11/27/2017 at 16:38

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Yeah I’m more familiar with that concept of it. And it strikes me as a fair price to pay for poor financial management.

The US setup seems like a light slap on the arse by comparison...so no wonder the punters don’t try and financially educate themselves.

WilliamsSW > LJ909 11/27/2017 at 16:39

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I’ve never heard of financing a down payment before. That’s insane.

LJ909 > WilliamsSW 11/27/2017 at 16:49

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Yea alot of place here are doing it. I dont get how its not illegal.

Manwich - now Keto-Friendly > LJ909 11/27/2017 at 16:49

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“How to pay $64,000 for a a $31,000 car”

Manwich - now Keto-Friendly > Old Red Wagon 11/27/2017 at 16:55

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Dr. Zoidberg - RIP Oppo > HammerheadFistpunch 11/27/2017 at 17:25

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And not even a TLX A-spex

interstate366, now In The Industry > LJ909 11/27/2017 at 17:35

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Yep, and if you go back another couple years you get into late-model TSXs, which are even nicer.

Birddog > WilliamsSW 11/27/2017 at 18:15

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BHPH lots like JD Byrider do this all the time.

shop-teacher > WilliamsSW 11/27/2017 at 18:29

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This is the first I’ve heard of it in auto loans, but this was common in the housing market about a decade ago before the bubble burst. They called them 80/20 loans. You’d borrow 20% at a slightly higher rate, and use that as a “down payment” on your main loan.

I began my teaching career a couple years before the bubble burst. I looked into buying a condo, and got approved for an 80/20 loan. 7% interest on the main loan and 9% interest on the “down payment.” Oh, and it was a 5-year adjustable rate mortgage too ... because you can always refinance because it will certainly be worth more money then. The mortgage, taxes, assessments, and insurance totaled up to 2/3 of my take home pay. I was smart enough to realize that was insane, and rented a nice cheap apartment instead. The mortgage broker could not wrap his stupid head around why I wasn’t taking the loan.

Four years later we bought our house for not much more than that stupid condo.

WilliamsSW > shop-teacher 11/27/2017 at 18:40

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I had forgotten about that, you’re right. I remember buying my first house with 5% down, which seems crazy now. There was a lot of pressure to buy, and it was a breeze to get approval back then.

We seem to have gone too far the other way recently but those days were silly.

shop-teacher > WilliamsSW 11/27/2017 at 18:57

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I no longer have family in the business, my mom was a realtor for the last 15 years of her life, but as fast as I see houses selling around here I’m starting to wonder if they’ve losened up a lot ... or maybe too much.

I’m just lucky that by the time I graduated grad school, the bubble had gotten too big for me to get on. I watched prices plummet happily from the comfort of my cheap rental.

WilliamsSW > shop-teacher 11/27/2017 at 19:35

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Timing is everything! ! I moved late in 2005, so I overpaid for the new place but made a killing on the old place. It evened out.

Sadly, I know people who relocated in 2007-08 that took a beating on both sides. Bad luck for them.

shop-teacher > WilliamsSW 11/27/2017 at 21:45

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Yeah, I know a few people who did that and took a beating on it. For those like you who were able to sit tight, no biggie in the long run.

Nothing > WilliamsSW 11/28/2017 at 12:49

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Almost 30 years ago I remember my dad scolding my sister for putting her down payment on a credit card. And no, it wasn’t to get points or anything like that.

WilliamsSW > Nothing 11/28/2017 at 13:28

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Yikes! I can’t blame your dad for scolding her. That’s not a great move. In reality, though, I did some dumb things with money in my 20's, it’s just that being 20 years beyond that has taught me a few things...

Nothing > WilliamsSW 11/28/2017 at 14:47

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Yep, same here. Funny thing is that she just graduated college with her degree in accounting at the time. At least at that time, she had decent taste in cars. ‘92 Integra 4 door manual (got totaled) and replaced it with a ‘95 Vigor. It went downhill from there.

His Stigness > LJ909 11/28/2017 at 15:15

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You know, I’ve made some stupid choices in my short time as an “adult,” but holy fuck I don’t get what goes through people’s mind to think that’s okay.