Comments on: This is One Crappy Car Loan! Lessons on How NOT to Buy a Car!

By: Destini Imes

Destini Imes — Wed, 23 Jun 2010 10:30:28 +0000

Good post. The car insurance also depends on the cost of car. Some of the insurance company provides the cheap car insurance. I have gone through some of the sites where it provided the details of car insurance schemes or policies and benefits offered which will really suit car and it’s very useful too. carinsurancetemporary.co.uk

By: Libby | car loan

Libby | car loan — Fri, 24 Apr 2009 17:12:32 +0000

@kitty I agree with your statement “I am not against new cars – if you can afford it. But this person is not only broke, he is also young. Which means he is an inexperienced driver, not to mention someone whose insurance premiums are likely to be high. It’s just my opinion, but I’ve always thought young inexperienced drivers don’t mix well with new cars.” I think every first driver should get invest in a practical used car which they can afford to pay the insurance and payment without putting them under.

By: Matt Hubbard

Matt Hubbard — Wed, 15 Apr 2009 15:13:34 +0000

Oh, and I think taking out a car loan longer than 2 years is foolish. If you can’t pay it off in two years you can’t afford the car. Especially when you consider that average car life is around 5.5 years.

By: Matt Hubbard

Matt Hubbard — Wed, 15 Apr 2009 13:53:52 +0000

Return the car! You usually have 7 days according to state law to return a car, there may be a fee. PAY IT! It’s so much cheaper than that car loan.

Tell your roommate to return the car.

His interest rate is so bad it’s the same as putting the car on a visa.

By: Hogan

Hogan — Tue, 14 Apr 2009 03:06:37 +0000

@kitty
You make some good points plus I am easy to bait on the whole bad loan debacle.

By: kitty

kitty — Mon, 13 Apr 2009 03:56:15 +0000

@Hogan: I was trying to joke, but out of curiosity I decided to look at the numbers from the lender’s perspective. Given how high the interest rate is, it doesn’t look that risky for the lender:

After only the first year, he will have paid $4201. Let’s say he defaults or wrecks the car after one year – wrecking is better for the lender since the total value is higher than the resale value, so let’s say he defaults. The lender takes the car and sells. After a year, it’s probably lost 20% of its value if this is an American car, much less if it is Honda or Toyota. The original value was $13000, so 20% is $2600, so the lender can sell it for $10400. But by that time the bank has already received $4201 (from table above) i.e. the total amount the lender received from this guy is $10400+4201=$14601. So even with the default after the first year, the lender got $1601 in profit or 12% profit. So even if he defaults after just one year, the lender will have made a nice profit.

The further he goes without defaulting the more money the lender will get. Also keep in mind that most depreciation occurs upfront.

Now, the main risk is that he defaults sooner than a year. But psychologically the first year is kind of a “honeymoon period” when he is in love with his car, so more likely to make payments. Also, I’d imagine the lender got some nice fat fees upfront.

Keep in mind that many of these subprime real estate loans were starting with ridiculously low rate upfront. So for the first few years there was no money for the lender. As soon as the rates went up – oops, default. This is different since the lender gets a lot of money very soon.

A terrible deal for the borrower, a not-so-risky deal for the lender.

By: kitty

kitty — Mon, 13 Apr 2009 03:33:51 +0000

@Hogan – I was joking.

By: Hogan

Hogan — Mon, 13 Apr 2009 03:02:03 +0000

@kitty
This loan is a mirage just like California real estate, hopefully we don’t bail out the bank after this guy defaults on his loan. Lower the price of the car then I will buy it, don’t give a fake loan to some guy who will never pay it back so you can get away with selling it at the price you want and expect the government to back up the risk you just took.

By: kitty

kitty — Sun, 12 Apr 2009 21:27:34 +0000

On a second thought 24.99% makes a lot of sense. He is young, has no money, and statistically very bad risk to crash his car soon. In total, the bank or dealership will not be able to recoup their losses. Or a year from now he may just not have money to pay. So in this environment they need these outrageous interest rate to justify risk.

By: kitty

kitty — Sun, 12 Apr 2009 16:44:28 +0000

“Guess what every time a guy like this gets a crappy loan he drives up the cost of everything on people who are not willing to take such a huge risk”

Look on a bright side. He supports the economy, improves earnings of loan holder, car manufacturer, dealership, owner of the property that dealer occupies, even municipalities that collect taxes. So indirectly, he improves the value of our 401K. More guys like him, and we may actually be able to recoup our losses. Of course, this time we need to watch and get out before all of these people start defaulting again.

24.99%???? I cannot believe it. Someone I know who also had no credit history bought a car some years ago and her interest was 13%. We all were telling her how high it was and how she shouldn’t have done it. But 24.99%?! Who is the lender?

I am not against new cars – if you can afford it. But this person is not only broke, he is also young. Which means he is an inexperienced driver, not to mention someone whose insurance premiums are likely to be high. It’s just my opinion, but I’ve always thought young inexperienced drivers don’t mix well with new cars.