29
votes
US auto loan rejections hit record high as consumer credit standards tighten
Link information
This data is scraped automatically and may be incorrect.
- Title
- Noose Tightens on Consumer Credit, Auto Loan Rejections Hit Record High
- Published
- Jul 24 2023
- Word count
- 589 words
On one hand, this doesn't seem like such a bad thing. A lot of people take out ridiculous car loans that they absolutely can't afford and ultimately shouldn't buy. I'm curious, though, of the details with this. What percentage of these denials are on high-end/fancy cars as opposed to just basic vehicles?
Yeah, the bigger question to me is how much does this have to do with negative equity over vehicle price. Is this people who trade cars ever year and never buy crazy high but just keep rolling over a bill or is this the fact that an F150 can crest into the $100k range these days.
The article claimed "less people want loans but more are being rejected" which says to me that it's a 'needs a new car, not wants one' situation but that's making assumptions.
If that's the situation, I'm surprised that it took this long to get to this point. Used cars have been selling way above their actual value for a while now, and in general, a bank will not loan more money for a car than it's worth. I don't know if it's getting better or worse, but given the severe decrease of new cars being manufactured during COVID, it would sense that fewer used cars available would result in higher prices per car. Also, new car prices are still much higher than they were pre-COVID, so that will continue to have an impact on car availability.
Platinum and King Ranch editions have been that kind of money for a while now. I'm in Canada looking at CAD so I don't know when 100k+ USD F-150's happened but probably pre-covid.
People have been willing to spend stupid amounts of money on vehicles for a while now so automakers have been catering to that market more as supply was constrained. I don't know what the supply looks like now but I'd suspect we'll continue to see automakers trickle supply in so that the market doesn't get flooded.
I'll admit I've never been the target audience for $60k trucks, let alone $100k ones, so I guess I easily missed when they jumped the shark.
The shocker for me is that 46% of mortgage applications are rejected. That's a lot of people with dashed hopes.
Financial literacy is difficult for a lot of people. I sat down with some younger friends who had questions about investments. Within about 5-minutes talking with them, I realized they had been religiously contributing to their 401ks, but never invested the contributions.
This is a married couple in their early 30s who make a couple hundred grand a year. One has a masters in data science.
If these really smart people are struggling with financial concepts the lay person is at an extreme disadvantage in almost every situation.
I’m sorry, but could you expand on this? If I have a 401k through my company, my understanding was that the money my company and I contribute to my 401k goes into the investment funds I chose when setting it up
They didn't choose any investments. The funds were sitting in cash.
I guess it depends on 401k offering but all the ones I had automatically invest. In most cases you specify your retirement age when creating the account and it is being invested based on that.
From my experience I did not have 401k where the money wasn't automatically invested. On regular investment accounts, yes, but not on 401k.
I haven't seen that. Personally that would be a strong anti-feature. Usually they let you select from a set of options what you want to invest in. Target-date funds are an option, but are usually not the only option, and you are allowed to buy and sell funds.
A 401k is just a type of bank account, in the end.
This is the way it works for me as well. I take a peek a few times a year to make sure things are going where I want, but otherwise it's pretty hands off.
Believe it or not, but mortgage underwriters did learn a lot of lessons from 2008.
Do you have a source for that stat? I went to verify and I’m seeing sub 10% as the average across states in the US.
Not surprising, at one point recently there were banks lending at a 170% loan to value ratio! In other words they would let you borrow up to 17k on a car that sold for 10k. And with many consumers changing cars as much as I change my shorts that's a lot of people with a ton of negative equity that are stuck in cars they no longer want or worst case can no longer afford.
Multiple people in this thread have mentioned people switching cars frequently but I’ve never noticed that among the relatively financially diverse group I know. Even the well off people seem to keep their cars for a decent amount of time (let’s just say 5 years).
The only people I know who frequently change cars tend to lease instead of buying, which makes more sense financially.
I realize that just going by my friend group isn’t exactly scientific, however.
The average age of a passenger vehicle on the road in the US is twelve and a half years.
Most people haven't been able to afford new cars for a long time (let alone homes), well before the pandemic and current economic situation...and it's only gotten worse. The used car market is a sick joke right now. You can easily spend over $20K (new car money) on a six year old car with tens of thousands of miles on it.
In a country that has made it economically untenable to not own a car outside of a half dozen or few cities, there aren't options anymore. This is going to provoke another time bomb of a financial crisis, just like yanking money out of the economy by resuming student loan payments and interest.
That just proves my point though, that I don’t think there are that many people out there credit hopping from one car to the next.
I got extremely lucky and bought my current car in February 2020 (around $18,000 for a 2018 Chevy Volt with 20,000 miles), right before the market went crazy, so I haven’t had to pay too much attention to the car market other than to know it’s absolutely awful right now. I had my previous car for a decade and I’m hoping this one lasts just as long…
Just to counter your anecdote with my own, I know many people that get new cars frequently, and most of them do not lease the cars. I find it nonsensical, but I haven't been able to talk sense into them. They all tend to be well off people that are otherwise (usually) financially sane. So there are definitely people out there doing this.
I have a feeling those two things are connected.
How so?
Auto dealers will actively seek out recent car buyers and offer to trade their car for another.
They wouldn't do this if it was a good deal for the customer. It's a way to wrap them into more loans, and a new chance to get them into an overpriced vehicle that's going to rapidly depreciate.
People who take these offers will find themselves paying more over time without any material benefits other than "shiny new car" and so will probably not find themselves in the financially well-off category.
The people I know who are well off are good usually with money. And consistently going out and dropping large amounts of money on depreciating assets like vehicles is not a recipe for long-term financial success.
Notorious example, Jeffery Bezos still drove a 90's Accord back when Amazon started exploding. It's people deciding to live within their means and generate more wealth rather than store it in an inherently depreciating asset.
That's what, a five or six year old car at the time of the video? It's not a bad financial decision by any means, but neither is it shockingly frugal. I'd be more impressed if he was driving said Honda today, or if he was tooling around in an old CVCC at the time of filming, now that would be noteworthy frugality.
I also seem to remember hearing that Bill Gates drove a Focus as a daily, so it doesn't seem that unusual for billionaires to drive regular people vehicles.
What a weird thing to do, even if you have the money. I keep my cars until I wreck them or they break down.
I generally have this mindset as well. My only issue (which is why we're considering getting a new car at all) is that I don't have some safety features in my current very compact car and it's scary driving such a small vehicle on the road right now without lots of the safety features that are standard now. Otherwise, I would be driving this car into the ground like I did my first car.
Same here.