Tag Archives: credit

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Auto Loan Surge Fueled by Sub-660 Credit Scores

Much of the economic “growth” over the past few years has been a result of subprime auto loans boosting car companies’ profits. And the trend has gone on so long some car dealers are starting to worry.

From CNBC:

Consumer confidence is perhaps the best indicator of why auto sales are running so strong. For years, it’s been clear that as consumer confidence goes, so go auto sales. The most recent reading has consumer confidence at its highest level since 2004. Not surprisingly, auto sales this year are expected by many to reach or exceed 17 million vehicles for the first time since 2001. Last year, U.S. auto sales totaled 16.52 million vehicles…”Nothing is typical with this cycle. We’re all holding our breath wondering how far this can go,” said Krebs. She pointed out that the possibility of higher interest rates later this year and an impending surge of used cars that will hit the market once they reach three or four years in age could both slow down new car sales.

Yes, interest rates will have to go up eventually. So if you have the means and have developed the good financial habits necessary to handle a car loan, then now is the perfect time to step up the credit ladder and get a car.

If you’re not going to need a new car in the next couple of years, don’t get one. It’s not worth it just to get that loan reporting on your credit scores.

But also keep in mind that we’re at a historically unprecedented interest rate level right now. Rates won’t be this low for a very long time, so if you’re planning to buy a car in the next year to 18 months, you might consider pulling the trigger, as long as you can afford the payments based on your current income.

This is a good time for smart people with good financial discipline to take advantage of low interest rates and profit.

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Do You Care that the 1% Owns Half the Wealth?

From The Guardian:

Billionaires and politicians gathering in Switzerland this week will come under pressure to tackle rising inequality after a study found that – on current trends – by next year, 1% of the world’s population will own more wealth than the other 99%.

I’ve got to say, whatever your politics are, complaining about how much money someone else has is no way to go through life. At best, that kind of envy is petty; at worst, it is a sin.

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Teacher Pays Off $92,000 Debt in 3 Years

A somewhat inspirational story from Yahoo! Finance:

“We made a spreadsheet of our debts and listed them from smallest to largest,” Emily explains. “We started with the smallest and went from there — although we tackled the car payment before another, smaller one, because the interest rate was so high we wanted to get rid of it. When we paid each debt off, we just stuck that minimum payment onto the next one.”

The Adlers tackled their debt aggressively, to the point where they put any extra cash at all, like a holiday gift, towards their debt, and didn’t allocate a dollar to buying clothing. “By the end of it, we were wearing clothes with holes in them,” Emily shares.

Well, that’s one way to do it. I’m not sure the profile of these debts, but the wife referred to the “car payment” in the singular. So that’s probably one car and a whole bunch of credit cards. If that’s the case, then this couple went about this in a smart way: they changed their lifestyle in order to build new habits.

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US Consumers Most Optimistic in 10 Years

Despite all evidence to the contrary, US consumers expect 2015 to be a fantastic year for stocks, wages, employment, and housing prices. From ZeroHedge:

UMich Consumer Sentiment surged to 98.2 – smashing expectations of 94.1 by the most in almost 2 years. This is the highest sentiment since February 2004…!!This all seems very odd… especially in light of the dismal retail sales data and weak wage growth (and we note this is the preliminary print). Inflation expectations plunged to 2.4% (from 2.8%) – the lowest since 2010. American optimism remains unphased as a majority (55.2%) now expect higher wages in the next year (despite earninsg [sic] actually dropping!!)

Whenever I post a news article, I always bring it back down to the individual level to give you a takeaway that will help you improve your financial life. So what can this survey teach you?

Nobody can predict the future. The coming year may turn out to be a great year all around. I can tell you why I’m not quite that optimistic about it, but that misses the point. The point is that optimism of this kind leads to overspending and undersaving.

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The Credit Ladder: How to Leverage Your Way into The 1%

What is the one kind of money that is least likely to make you rich? The answer may surprise you: it’s your salary. But if you think about it, it is really, really hard to get rich off of the money your company pays you every two weeks.

When you try to think of high-earners in America, most people think of athletes, movie stars, and entertainers. But if you look at any list of the wealthiest people in the country, there aren’t any of those professions in there. In fact, there aren’t any people who have gotten rich off of their salaries. So how to they do it?

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Lifetime Cost of Debt: $280,000

As I’ve written before, having bad credit will cost you lots of money in the long run. Bad credit means higher interest rates (assuming you can even get a loan in the first place) and fewer options.

From Marketwatch:

Residents of the District of Columbia (while not technically a state) pay the most in interest over their lifetimes — $451,890, which includes an average new mortgage balance of approximately $462,000. D.C. residents also have an average credit score of 656, close to the U.S. average of 687, according to Credit.com, which calculated the figures based on a 30-year mortgage, average car loan balance of $22,750 (assuming nine car loans over one lifetime) and 40 years of revolving credit card debt.

656 is technically on the upper fringe of subprime territory, and the national average of 689 isn’t that great. There’s a lot of room for improvement for our country.

If you’re curious, you can play around with this calculator to see how your lifetime cost of debt changes based on your state, age, and debt levels.

The results will be similar for most people: if you have bad credit, you will pay roughly twice as much in interest as if you have excellent credit. 

Credit repair is more important than ever.

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How Long Will Lower Gas Prices Last?

That seems to be the question on many consumers’ minds. The short answer is that nobody knows for sure. Two days ago, a Saudi Prince predicted that we would never see $100 oil again. The most interesting theory I’ve heard is that we have reached not peak oil, but peak oil demand: due to a combination of increased fuel efficiency in the developed world and decreasing demand in the recession-bound developing world, oil demand will face a steady, prolonged decline. This certainly squares with what we’re seeing worldwide.

For consumers, the drop in gas prices is great, right? Well, sort of. Christmas sales numbers suggest that rather than go out and spend that extra money on gifts, people were paying for (neglected?) necessities.

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Auto Loan Delinquencies at Highest Since 2008

From the Wall Street Journal:

More than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.

So 1 in 12 people who took out a car loan in the first quarter of 2014 were already missing payments by November. That’s why the loans were considered subprime to begin with, but still…that’s pretty high.

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Americans Shed Credit Card Debt at Record Pace

From ZeroHedge:

Sure enough, moments ago the Fed reported household consumer credit for the month of November and it is there we learned that not only did overall consumer credit miss expectations for the 4th month in a row…but that in November revolving credit, aka credit cards, not only declined for the first month since August, but it had its biggest collapse since November of 2013, which not only explains why this year’s Thanksgiving spending season was a complete disaster but also shows that contrary to the S&P hitting record highs at roughly this time, the bulk of America is still actively deleveraging.

Now, the country’s total credit card debt is often viewed as a sign of consumers’ expectations about the economy. If they expect things to get worse, they start tightening their belts and charging less on credit cards. That appears to be what’s going on here. Despite lower gas prices and a rising stock market, people on don’t feel like their personal economic situations have gotten much better.

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Auto Loan Bubble: Bad for Economy, Good for Savvy Consumers

Subprime Auto Loans at All-Time High

Graph courtesy of ZeroHedge. I’ve blogged about this before. This bubble will burst like all other bubbles do, which will harm the economy. But If you’re responsible enough to take on debt to buy a car, now is a great time to get an auto loan–rates are low, and they’re handing them out like candy on Halloween.

However, if you’re still trying to get your financial house back in order after getting in over your head with debt (like I did during the 2009 crash), do not take on new debt. Better to let this opportunity pass than to undo all the hard work you’ve done getting out of debt.

Before getting a loan, do a hard, realistic self-examination. Can you afford the payments comfortably, now (i. e., not once you get that raise/promotion/winning lottery ticket you’re certain you’re going to get)? If not, don’t get the loan. Buy a crappy car you can pay cash for and accumulate savings while you build/rebuild your credit.