Another Crash Coming? Banks Going All In As Auto Loans Losses Rise

Don't worry. When the financial institutions crash *again*, the federal government will do what it did last time: Borrow money from the big Chinese bank, give it to our faltering institutions, and send the bill to the taxpayers in the form of increased national debt, and bigger debt support payments (i.e., more of your taxes going to support the debt than helping people and running the country).

Been there. Done that. I didn't think it was a good idea the first time around, but that's just me.

But, but, but, 009, isn't the bank doing what the free market is supposed to be doing? There's demand for these loans, and the private market knows best what the market need and what they can afford right? Just what are you proposing anyway? The buyers want these cars and they think they can afford the payment. The banks, heck these companies are smart and ethical, know what the borrowers can afford to pay so they only lend them to those that have the right income level. So let these two dance with one another. What is it that you want 009? Spit it out, do you want some sort of ...... GASP .... regulations????

The 72, 84, and even 96 month loans astound me.

First of all, any risk the banks take with auto loans is not going to sink them. While auto loan performance is very cyclical, unless you're absolutely all in with sub-prime which tends to explode, any decent bank can weather the storm. The problem with subprime is twofold. Those with past credit problems have those problems because of their weak jobs and income. Any kind of economic downturn hits these people first and hardest. Secondly, subprime implodes due to competition. The thirst for yield and volume causes the competitive market to weaken standards and also causes yields to drop. More losses than projections combined with less extra yield or risk premiums cause big time losses

Secondly, I tend not to worry so much about 72 and 84 month loans as long as: 1. You have good quality borrowers 2. You don't combine 84 month loans combined with a payment the borrower can't afford even with the extended terms.

Note: while I don't work for a "big bank" I have been in the lending business for 32 years and manage a nearly billion dollar auto loan portfolio.

It's all well and fine to say that there should be no worry about 72 and 84 month loans so long as you have good borrowers, BECAUSE those terms exist primarily to lower monthly payments for customers who cannot afford the car they are after.

Locally, most of the too-good-to-be true advertised auto loans are of the 84 and in one case 96 month terms and people who can at best afford a used car, suddenly think they can afford a new one.

OR someone who has not paid out the contract on the car he is driving wants something new, but the refinanced "negative equity" would make the monthly payment so hello 84 months.

We refuse to write beyond 60 and if people walk, they walk.

When those long-term contracts so belly up, the customer blames the dealer for screwing them over and reputation is everything.

If you don't have the cash, you can't afford it. Save until then.

Or buy a model with fewer options. A person can have a hell of a lot of fun with a $25K Mustang V6 to the point that the $42K GT isn't 100% necessary.

Or lease...